Friday, April 30, 2010

Bonds - 3rd Break Out a Charm?

I want to bring your attention to the daily chart (below) of the exchange traded long bond or the TLT's and it's 3 break outs.

Break out #1 green - the break out occurred on Apr 21 thru the 90 level. $90 was obvious to even a boob like me but as I watched TLT trade the concern I had was that volume accompanying the move thru 90 was VERY suspect.

Break out #2 orange - the break out occurred on Apr 27 thru a short descending trend line just above 90.75 ballpark. We backed off to close the day but volume was SENSATIONAL. The next 2 days we got a consolidation that hugged the previously mentioned descending trend line from above.

Break out #3 yellow - is today. the break out is taking out the highs of Apr 27 and also taking out the cluster of highs that formed back in mid Jan-early Feb. Today's volume is going to be above average so it looks good so far.





Now here is where things get more interesting and can clear up some doubt. Have a peek at the weekly chart (below) of the TLT's


Now I know we haven't closed yet but look at the move here on MONSTER volume.

Based on this, I am getting long 1 unit of the TLT here at $92.05 with a stop at $89.68


Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 92.15 stop @ $89.68

Wednesday, April 28, 2010

Reality is Stranger than Fiction

Many of you watched the Goldman Sachs hearings on Pom Pom TV yesterday. I had it on simply because one has to just marvel at the individuals involved. Quite the Vaudevillian show!

First up you have to understand that Goldman guys have trouble with simple math. Because at Goldman and on Wall St. in general, 2+2=not 4 but rather whatever they say it does, just ask Jefferson County Alabama, Orange County California, or Narvik, Norway.

One bit of clarification regarding the self proclaimed 'Fabulous Fab' Tourre. This vice president, (how many are there on Wall St.?) and certified legend at Goldman is not a trader he is a salesman. Rather than selling shoes at Stride Rite or furniture at Art Van he sells product at Goldman Sachs. That said, I am rolling on the floor laughing at this poor boob and his fellow Goldmanites. They are all too funny and so hollow. I will simply leave my comments at that rather than verbalize the numerous insults that come to mind for this character after watching his performance for only a few minutes.

Quick question for Lord Blankfein, vice Lord Vinier and the rest of the crumb chasing crowd. How much of this product providing liquidity you keep repeating, does your mother, father, brother sister et al. own? Just curious?

I have said it before and will say it again. Wall St. is infested from head to toe with a deadly virus. There is no cure. The patient needs to be quarantined and put down. Now you can forget about asking anyone on Wall St. whose income depends on this scam continuing this question because self preservation is a trait inherent in all creatures. On Wall St. they will eat their young and sell their mothers and daughters into sex slavery for a bonus or a commission.

This deadly virus I am referring to in Wall St. has been festering in for some time with the symptoms now openly visible for all to see.

Lets have a short history lesson.

Think back to one Henry Blodgett. Remember him?

The all-star internet analyst at Merrill Lynch who had come over from Oppenheimer. Remember his internal e-mails remarking how shitty deals were and how garbage certain stocks were after having publicly proclaiming them stellar and recommending them for clients? Don't forget now that prior to becoming an all-star internet analyst, Mr. Blodgett was, according to public records, a proof reader for Random House books via his BA in English from Princeton. Only a dope wouldn't be able to see how eminently qualified he was to analyse internet companies. Lovely. You just cannot make this stuff up, you truly can't.

More history.

Remember Michael Stamenson?
Remember Frank Quattrone?
Remember Jack Grubman?

How many times must we see the same sequence of events play out with the same thug characters like those above we get our collective heads out of asses and do something about it?

The solution actually is really quite simple.

All actions must have consequences. I think we should have learned that in kindergarten no?

No consequences then no deterrent, with apologies to the time out parenting crowd.
What was it famous judge Roy Bean said? I think it was something like a good hangin' tends to focus men's minds.

Further to all of this I have a question for our current and former market leaders. Men like John Bogle, Warren Buffett, Bill Gross, Richard Russell, Peter Lynch, et al.

Where is YOUR outrage at all of this?

Why are YOU not standing up separating yourself from the pool of maggots?

Are YOU not concerned with the survivability and continuity of our markets?

Do you not possess and inherent love for the markets. They are your 'office'. Do you not wish to see them survive and prosper or are you that greedy that you will forfeit their survival to make a buck and look the other way?

To Mr. Buffett directly, where are your onions? Where is your leadership? Stop guffawing at Becky Quick for 5 minutes and focus on the larger picture you so often reference. Are you not repulsed by what Goldman and Blankfein stand for and represent?

Have you not had enough with the "you want a friend on Wall St. get a dog bullshit"? Do you not see that our capital markets integrity and survival is at stake or are you winding down and care less.

We all remember you stepping up to the plate years ago to help your dear friend John Gutfreund at Solomon Bros. during their bond trading scandal. Now once again you step up to help your "dear" friends at Goldman Sachs when they were in need. Is this attraction to assist dirt bags in time of need just coincidence or are you simply one of them while presenting yourself publickly as not?

Do you not see any of the issues so many in the blogosphere seem to have with the likes of Goldman and their ilk or does it simply matter not to you?

Just some questions. Now some quick hit items.

Questions are now being asked as to whether GM has really managed to repay their governnment loans or whether it is a big shell game. It seems, according to Sen. Grassley (R-IA.) that GM repaid their bailout money with..... drum roll please, bail out money from another account (escrow to be precise). This seems to be backed up by TARP Neil Barofsky which according to the above article;

In a report issued earlier this week, Barofsky, the special inspector general for the TARP, said, “GM has made several payments on its outstanding loan to Treasury and expects to pay it in full by June 30, 2010. The source of funds for these quarterly payments will be other TARP funds currently held in an escrow account.”


Noticed recently that an IRS agent owes over $12k in back taxes as he somehow managed to omit reporting income on $41,842 in Ebay sales. Maybe he took the tax return course offered by his boss Tim Geithner.

And lastly, with the debt crisis that is going on in Europe with Greece, ( and with Portugal and Spain on deck) Greek officials decided to take the bold step of......drum roll please..... banning short selling. Too funny. No different than Pavlov's dog.

Reality is stranger than fiction.


Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97

Thursday, April 22, 2010

Book Report - Survival + Structuring Prosperity for Yourself and the Nation

s
I recently concluded reading Charles Hugh Smith's book Survival +. For those that have been living in a cave Charles is also the author of the very popular daily blog Of Two Minds. I have encouraged the plethora of readers I have, (does 6 not including family make a plethora?) to makes Charles site a daily must visit.

His writings are clear thinking and straight to the point. Charles is a big picture thinker and his book is exactly this. His book is not a how to Survival guide in the sense most would expect but rather a clearly reasoned warning as to what is happening around us and where we are headed .

Many look for books to tell them to now do this and then do that and after that do this. For those that demand this type of instructions please hear me on this, if Someone told you it would rain for 40 days and 40 nights, would you also need that Someone to tell you to build an Ark?

Below is a quick snippet lifted directily from the Survival + pages: 357-358

"A small community town has abundant fresh water resources. A large multinational corporation approaches the town council to purchase the rights to the water. The multi-billion dollar corporation sees the water as a windfall inviting exploitation, and so they present what appears to be a windfall to the small city leadership: new jobs, a new park, stable tax revenues, and so on.

But the small-city government is no match for a global corporation which possesses the great advantage of information asymmetry: the corporate leadership knows their own long-range plans while the city leaders know only what their corporate public-relations team decides to tell them.

Given the legal thickets ow water rights and contractual laws, the global corporation can easily construct a complexity fortress that is essentially impenetrable to the inquiries of the small-town leadership.

Presented with what appears to be a windfall, the town leaders agree to the corporation's contract.

Very quickly, information asymmetry flashes its polished teeth: the company decides to renege on various employment and public improvement promises citing 'market conditions' or other excuses. The town residents soon discover that the ceding of their water rights is legally unbreakable but the promised dividends from the global corporation are all rescindable without recourse.

The corporation, of course, has a veritable army of attorneys and consultants to defend its rights, while the township has none. "

This is just a quick flavor of Charles writing and one of many subjects Charles navigates through.

Could their come a time when thinkers, men and women like Charles Hugh Smith among us, get a seat at the table of council upon council of political advisors and be listened to. We would be so lucky were this so.

Survival + is required reading for all of us. Get yourself a copy which can be ordered over here at Amazon sit down and read Survival +, you will not be disappointed.
If only both our elected and unelected officials would do the same and read it as well. One can dream can't they?

In the economic climate we now live in, this type of book is truly a gift.

Thanks Charles, much appreciated.

Full disclosure and for what it's worth I receive no commission, fees or royalties of any type of renumeration for this review and recommendation of Survival +. I simply do this in an attempt to help share with you resources that my might assist you in being prepared and thinking critically about what is on the horizon.

Thanks for your contribution with Survival + Charles, much appreciated.



Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97

Tuesday, April 20, 2010

More Jim Chanos

Charlie Rose is the master interviewer. This one below is an excellent one done early last week with Jim Chanos of Kynikos. Well worth watching his thoughts on China and our own capital markets.

You can click on the link here to see the full interview.


As for our stock market it is truly something to behold. It can....

Ignore Goldman and Abacus
Ignore Lehman 105
Ignore Greece
Ignore record credit contraction
Ignore record foreclosures
Ignore shadow inventories
Ignore mark to fantasy financial balance sheets
Ignore record insider sales to buys numbers
Ignore unemployment
Ignore skipped mortgage payments resulting in positive consumer sales numbers
Ignore record debt bubble
Ignore, ignore ignore.

Quite the resilient tape is it not? Hey, wait a minute... wasn't resilient the word de jour for former Treasury Sec. King Henry Paulson back in late 2007 and al through the decline of 2008 to describe the economy? I think so.

Housekeeping notes;

I was stopped out of my DAI short position yesterday at $52.25 for a flat trade.

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97

Friday, April 16, 2010

The Cess Pool that is our Capital Markets

Yes readers, yet another addition to the file called you just can't make this shit up.

Today we get word the hapless SEC is bringing charges against Goldman Sachs regarding a pool of toxic shit created with a helping hand from master of the universe hedge fund manager John Paulson of Paulson and Co., with the express intention of shorting the tar out of said pool of toxic shit, resulting in a billion dollar profit for he and losses for, in all likelihood, your pension plan.

This all reminds me of a great quote from the movie Scarface. One of my all time favourites. Remember
Robert Loggia's role in the movie as drug boss Frank Lopez when he said to the up and coming Tony Montana,

"Lesson number one: Don't underestimate the other guy's greed !"

Yup. Never, ever, ever underestimate the other guys greed. You got that right Lopez.

If there is one thing I can say with absolute confidence is that through all of this, my criticisms of Wall St., Goldman Sachs and all their ilk has been galactically understated. The whole system has been contaminated with a virus that is beyond eradication. The rot you see is like the tip of an iceberg exposed in the ocean .... it only represents about 15% of what is there.

Did you catch spin doctor-in-chief for the financial sector Dick Bove of Rochdale Securities out on Propaganda TV asap this morning? Simply being a good foot soldier and following the standard talking points script when bad news (aka cockroaches) comes out of the cupboard.

Did you expect Bove to tell you Goldman is finished with this. Of course this has to be a short term problem for Goldman?

Do you really expect the Wall St. shills to come out and tell you Goldman Sachs stock is not a good investment?

Nope. Simply circle the wagons, boyz. Every dip is a buying opportunity, keeping the game going is of paramount import.

As for this Fabrice Tourre. No doubt he is the absolute perfect candidate to replace Lloyd Blankfein at the helm of GS, heck he should be the next Fed chairman.


Sadly we get what we deserve and
in all probability Bove and all these other hacks CNBC will trot out all day are correct, everyone will still keep doing business with Goldman. Wall St. is made up of thousands of cats like Paulson and Tourre, douchebags who would sell their own mother or daughter into sex slavery for a six figure bonus.

Absolutely sickening.


But hey it matters not. Markets always go up. Buy the dips. The trend is your friend, enjoy!

As for you John Paulson, one has to just marvel at the acumen or is that brazen audacity of yet another of the 'smartest guys in the room'. It sure must have been tough sleding riding out the bumps of that short position of shit you rigged together with your accomplice Goldman now wasn't it John?

How about we all acknowledge what is fact, that you, John Paulson and the rest of the 'smartest guys in the room' on Wall St. are simply thugs running a rigged game with the assistance of your cohorts on Wall St., not forgetting your enablers in Washington, who instead of policing you, look the other way for a bag of cash (campaign donations).

You Mr. Paulson have been revealed to be nothing more than a street hustler and scammers, running a crooked dice game, who like I said earlier would
sell your own mother or daughter into sex slavery for a six figure profit.

You took extensive pains to select the absolute shittiest of shit for that portfolio of CDO's which Goldman helped you create so you could short. You deserve to be richly rewarded for all that legwork you and your firm did.
Enjoy those hard earned profits John, about a billion if I recall correctly. You richly deserve it. How you look at your face in the mirror is beyond me.

But please John, just don't call yourself a capitalist, a speculator or investment manager for you are nothing of the sort, hearing you do so insults what little intelligence I have.




Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit Daimler ticker DAI @ $52.23 stop @ $52.23

Thursday, April 15, 2010

Free Market Capitalism... emphasis on free!

For some time I have been trying to reconcile what Wall St. is spitting out every day regarding the economy. In particular it has truly been vexing to me as to how restaurants and retailers have been "prospering" in this economy.

I mean, one might conclude that in this economy, dining out and conspicuous consumption like Ralph Lauren and Abercrombie would be cut out or severely curtailed. But not only are entities results not down they are thriving. What gives is a question that has perpetually run through this simpleton's mind. A logical answer, that people are spending the mortgage payment and living for free while the banks play extend and pretend with the note, almost seems to perverse. Naaah, that's craziness.

Okay, sbout a week ago a friend emailed me with a link to a note written over at Housing Wire - great blog by the the way, which I check in on from time to time. In the piece entitled, For Consumer, Time to Shop (Until the Mortgage Drops) this same angle was posited, people are spending their mortgages, with some back up from blog Calculated Risk.

Check this exerpt;

"Instead, we’re seeing consumer spending head northward, and for five straight months, too. This data has many economists touting a nascent economic recovery, but I think the data instead paints a very sinister picture.

Put simply: people are spending their mortgages.

Consider the following individual as a case study — an actual ‘HAMPlicant’ at one of the nation’s larger servicing shops, as highlighted in a guest post at the Calculated Risk blog. They had an $1,880 monthly payment on their mortgage they’d defaulted on, yet their bank statements for the past 30 days included the following expenses:

  • visits to the tanning salon
  • visits to the nail spa
  • some kind of gourmet produce market
  • various liquor stores
  • A DirecTV bill that involved some serious premium programming or pay-per-view events
  • Over $1,700 in retail purchases, including: Best Buy, Baby Gap, Brookstone, Old Navy, Bed, Bath & Beyond, Home Depot, Macy’s, Pac Sun, Urban Behavior, Sears, Staples, and Footlocker

Here’s one household that’s clearly doing their part to ensure that consumer spending stays strong. And any sane person should be asking themselves: How many more people like this are out there among the 7.4 million delinquent loans we now have? And how many more ’spenders’ are there among the 5 million or so currently underwater homeowners — many of whom may at some point decide to default on their mortgage, too, but dutifully continue spending at Best Buy and eating at the Cheesecake Factory?

And the zinger: what happens when these people eventually find themselves, at some point in the future, saddled with rent or a mortgage payment?

Even if you assume that just half of the current 7.4 million currently delinquent mortgages fit this sort of ’spending profile’ (that is, they are spending their mortgage) and you assume a $1,000 median monthly mortgage payment for most U.S. homeowners — you get a $3.7 billion boost per month to consumer spending. It’s certainly enough spending to matter in the overall scheme of things.


Well, yesterday we got this piece Considerable Numbers will Lose Homes, from a Bank America exec. Without further adieu here is the money piece of the article;

Bank of America's top mortgage executive, testifying today before Congress, will release sobering details of home-loan delinquencies, including that "hundreds of thousands of customers" haven't made a payment in more than a year.

Betcha didn't hear that on CNBC now did ya? Of course not.

Now what about Wells, Citi, Fifth Third, Sun Trust, US Bank? Must only just be one cockroach under the cupboard right?

All these homeowners living for free heading for Best Buy with a quick stop for a tan on the way. Nice! I just adore free market capitalism, especially when the emphasis is on free.

What awaits on the other side of this bridge is absolutely ...... awww forget about it.

It matters not. The market is going up. The trend is your friend. Enjoy!

Just remember this and other posts on the blogosphere like it when the inevitable comes and the thugs thou trust tell you nobody saw it coming.


Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $8.49
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit Daimler ticker DAI @ $52.23 stop @ $52.23

Tuesday, April 13, 2010

Joseph Goebbels Beaming with Envy

Joseph Goebbels was a politician and Reich Minister of Propaganda in Nazi Germany from 1933-1945. Of all the things he is infamous for, and believe me there are many that will make your skin crawl, he is widely known for this following quote;

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie.


It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”


It is with this in mind as a lead in to a piece Paul Farrell over at the web site MarketWatch has today. I have read Mr. Farrell's stuff for some time, mainly due to his white hair which I equate with credibility (re: experience) but also as a result of his level headed views.

Farrell's piece entitled Dow 12,000 next? or New Record 14,165? Wall Street's happy talkers making fools of 95 million investors (again) is a doozy. In it he calls out all the Joseph Goebbel wannabees.

Now for you kool-aid drinkers out there I urge you to skip the article, pour yourself another glass of the sweet stuff, call your broker and focus on more pressing matters like which funds you should be switcherooing around in your IRA account, large-cap, small-cap or emerging market to take advantage of the bull market.

For your reading pleasure I have posted the article in its entirety below or you can click on the link above and read it over at the Marketwatch site.
Enjoy.


Paul B. Farrell

April 13, 2010, 12:01 a.m. EDT

Dow 12,000 next? Or new record 14,165?

Commentary: Wall Street's happy talkers making fools of 95 million investors (again)

By Paul B. Farrell, MarketWatch

ARROYO GRANDE, Calif. (MarketWatch) -- Yes, we hit 11,000. Propaganda. Yes, we'll quietly sneak past 11,722 (Dow's 2000 peak). Yes, we'll happily climb to 14,164 (Dow's 2007 peak). Maybe. But you're being conned: Even a new record of 14,165 barely equals CPI inflation the past 10 years.

Get it? Wall Street's lost more than 20% of your money the past decade. Now they're blowing a new bubble, filled with more toxic costly hot air.


How to invest for the end of the world

Afraid of a hurricane? Pandemic? Global Warming? Dow Jones Advisor columnist James Altucher tells Shelly Banjo what stocks to consider.

Yes, the bull's back. But not the bull market kinda "bull." The "happy talk" kinda "bull" propaganda. Did you hear the double-speak coming from our Greenspan clone, Ben Bernanke, the Fed's No. 1 lobbyist, Washington's cleverest politician and Main Street America's biggest enemy? His "best guess" last week: "If economic conditions improve, as I expect, we should see increased optimism among consumers and greater willingness on the part of banks to lend, which in turn should aid the recovery."

Yes, if this, if that, if, if, if ... pure bull. Bernanke said nothing that a high school student couldn't recite from an Econ 101 text. What's he really telling us? The Fed's member banks won't lend a dime till the consumer get more optimistic. What nonsense: He shoveled trillions to Wall Street fat cats last year when consumers had zero optimism.

Bernanke's spouting the happy-talk sound bites for cable news. Why? Bernanke's under fire: Congress is considering restrictions on the Fed's secretive out-of-control spending that's adding an estimated $23.7 trillion in new debt to America. You can't trust Ben's propaganda.

Now check on the other end of the "truth-or-consequences" spectrum: Yale Economist Bob Shiller's warning a double dip in the economy "has a substantial probability." Bloomberg/BusinessWeek also says Pimco boss Bill Gross has turned bearish, warning that the "almost three-decade bond-market rally is coming to a close," that "bonds have seen their best days" as "rates are moving up." Stuff Bernanke should be telling us.

The Propaganda Machine: In 2007-2008, in 1999-2003, in 1929-1933

Yes folks, we're all optimists, blind optimists. We dismiss facts, block reality, deny history, even recent meltdown. Not just Wall Street, also Main Street's 95 million investors. Yes, you. We all want to be deceived. We want to trust in a better future, want the good news, optimism, happy talk, bull markets. We desperately want to forget the harsh reality of the recent past.

And Wall Street and co-conspirators in cable TV know this too. You're profiled as a loser. They know you're a sucker for happy talk.

Yes, this Propaganda Machine is feeding the media a steady diet of happy talk. And the No. 1 rule for ratings success is: "Know what the masses want and feed it to them." Audience become sheep, cheer, want more. Today people are desperate for good news after the tragic lack of leadership the past few years.

We got a dark reminder last week as two former Citigroup bosses (one a former U.S. Treasury Secretary) admitted they "did not have a grip on what was happening" in their "too-big-to-fail" bank. Yet those bozos created a disaster and still pocketed hundreds of millions. And far more evil, their fat-cat successors are spending hundreds of millions of their shareholders' money to defeat financial reforms that will prevent this from happening to them again.

Unfortunately this historical cycle is doomed to recur. Except the next time it'll end in another, bigger meltdown, and the Great Depression 2 that the Fed and Treasury keep pushing downstream. So expect the Propaganda Machine to keep feeding sound bites to the media, as this Happy Conspiracy between Wall Street, Washington and Corporate America keeps manipulating Main Street's 95 million investors. It never ends.

Here are three historical reminders:

The Propaganda Machine in 2007-2008 meltdown

BusinessWeek, Kiplinger's and USA Today reported on the false predictions made before the 2008 subprime credit meltdown spread rapidly across America and the world:

  • Bernanke: "I don't anticipate any serious [failures] among large internationally active banks."

  • Ken Fisher: "This year will end in the plus column ... so keep buying."

  • "Mad Money" Jim Cramer: "Bye-bye bear market, say hello to the bull."

  • Goldman Sachs' Abby Joseph Cohen: "The fear priced into stocks is likely to abate as recession fears fade."

  • Barney Frank: "Freddie Mac and Fannie Mae are fundamentally sound."

  • Barron's: "Home prices about to bottom."

  • Worth magazine: "Emerging markets are the global investors' safe haven."

  • Kiplinger's: "Stock investors should beat the rush to the banks."

  • Madoff: "It's virtually impossible to violate the rules."

Bad calls? Very bad. But Main Street's a willing victim, we want to believe the happy talk. We're all trapped by this deadly disease, like sheep waiting to be slaughtered.

The Propaganda Machine in 2000-2003 crash and recession

Back a few years ago we reviewed a 2003 book, "Bull! 144 Statements from the Market's Fallen Prophets," published during the 30-month recession, when Wall Street was losing $8 trillion in market cap. Here's a few of America's opinion leaders spreading their misleading happy talk as the market slowly disintegrated for 30 months from 11,722 to 7,286 in October 2002. Yet they prattled on.

Unfortunately, many of these Fallen Prophets are still misleading investors as members of the new Propaganda Machine:

  • James Glassman, author "Dow 36,000." "What is dangerous is for Americans not to be in the market. We're going to reach a point where stocks are correctly priced, and we think that's 36,000 ... It's not a bubble. ... The stock market is undervalued." A month earlier Dan Kadlec published "Dow 100,000." (October 1999)

  • Larry Kudlow, CNBC host. "This correction will run its course until the middle of the year. Then things will pick up again, because not even Greenspan can stop the Internet economy." (February 2000)

  • "Mad Money's" Cramer: "SUNW probably has the best near-term outlook of any company I know." (September 2000)

  • Lehman's Jeffrey Applegate. "The bulk of the correction is behind us, so now is the time to be offensive, not defensive." (December 2000)

  • Alan Greenspan. "The 3- to 5-year earnings projections of more than a thousand analysts ... have generally held firm. Such expectations, should they persist, bode well for continued capital deepening and sustained growth." (December 2000)

  • Suze Orman. "The QQQ, they're a buy. They may go down, but if you dollar-cost average, where you put money every single month into them ... in the long run, it's the way to play the Nasdaq." (January 2001)

  • Maria Bartiromo. "The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions." (March 2001)

  • Goldman Sachs' Cohen. "The time to be nervous was a year ago. The S&P then was overvalued, it's now undervalued." (April 2001)

  • Lou Dobbs, CNN. "Let me make it very clear. I'm a bull, on the market, on the economy. And let me repeat, I am a bull." (August 2001)

  • Larry Kudlow. "The shock therapy of a decisive war will elevate the stock market by a couple thousand points," with Dow 35,000 by 2010. (June 2002)

All propaganda. No facts. All happy talk designed to manipulate you and me. All part of a tacit conspiracy, the Propaganda Machine. In fact, the Dow bottomed only after a 30-month bear market, in October 2002 at 7,286. The Iraq War started in April 2003.

The Propaganda Machine in the 1929 crash and 1930's depression

The Propaganda Machine never stops, and thanks to the Supreme Court, it will make matters worse in coming years. Let's go back to the crash of '29 and the first Great Depression. Unfortunately it will take a replay of the 1929 disaster to trigger Wall Street reform. Dodd's bill is too little, too late.

So listen closely to all the happy-talking -- past, present and future -- and plan accordingly because 2012 is the new 1929:

  • Irving Fisher, Yale Ph.D. in economics: "Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months." (Oct. 17, 1929)

  • Goodbody market-letter in New York Times: "We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices." (Oct. 25, 1929)

  • Business Week: "The Wall Street crash doesn't mean that there will be any general or serious business depression ... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before." (Nov. 2, 1929)

  • Harvard Economic Society: "A serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall." (Nov. 10, 1929)

  • Treasury Secretary Andrew W. Mellon: "I see nothing in the present situation that is either menacing or warrants pessimism ... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress." (Dec. 31, 1929)

  • President Herbert Hoover: "The depression is over." (June 1930)

Yes, the Propaganda Machine is relentless, is growing stronger. And thanks to the Supreme Court's incredibly stupid decision making corporations human, the Machine will feed more and more propaganda through the media, lobbyists and campaign donations, to control Washington. "The Machine" has your profile, knows you're easily manipulated by happy talk and nonsense optimism.

There's little you can do: Capitalism and democracy are dead. And unlike 2008, we will not be able to dodge a replay of 1929 and a Great Depression 2 after the coming crash.

Copyright © 2010 MarketWatch, Inc. All rights reserved.

Goebbels somewhere must be beaming with envy at Wall St. Great piece Paul, thanks once again for your perspective and for calling out all the false prophets.


Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $8.49
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit Daimler ticker DAI @ $52.23 stop @ $52.23

Salesforce.com and Bananaless Republics


Below we have a multi-year weekly view of Salesforce.com, ticker CRM.

The chart below is a closeup view of the weekly chart hi-lighting the most recent "breakout".



In more important matters, Washington's Blog which puts out some very insightful, thought provoking stuff had a real gem yesterday entitled A Banana Republic With No Bananas. It is a must read. In the piece, it outlines the 4 pre-requisites for a full fledged banana republic which are;

1. Profits privatized and debts socialized.
2. Devalue paper currency.
3. Politicians use time in office to maximize their own gains.
4. Corruption remains unchecked, Politicians are only for show.

Here is a quick snippet from the piece which includes some comments from Bill Black, noted author of The Best Way to Rob a Bank is to Own One.

"William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").

Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980's during the "Latin American Crisis", and the government's response was to cover up their insolvency.

Black also says:

There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .

Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well."


The whole piece is well worth your time.



Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $8.49
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit Daimler ticker DAI @ $52.23 stop @ $52.23

Sunday, April 11, 2010

Classless Television

I want you to click this link here. In it you can watch a video of Robert Prechter's most recent visit this past week on CNBC's Fast Money show. It is truly a top 10 moment in the annals of classless television.

Forget for a moment the
host who cannot even pronounce Prechter's name properly. Instead, please focus on the behaviour and treatment the market pumping, frat boy panelists on the show offer Bob Prechter.

Notice how rudely they treat him.

Notice how the speak over him.

Notice how they refuse to let him finish his sentences.

Notice how they mock his comments.

Notice their exasperated body language.

Lastly, note how classy
Prechter remains in the face the frat boy antics. (being such a contrarian he might just be used to it by now)

Now really, ask yourself this. Would you expect anything less from this crew of grease balls? Seriously, if there ever was a reason to steer your child away from Wall St. a group photo of this crew
Terranova, Grasso, Seymour, and Najarian would surely be exhibit A.

Listen,
Prechter may be right or he may be wrong on the markets but I could not help but observe the nervous hostility by the panel to his bearish views. Geen now isn't that a shocker! Seems to me they are absolutely petrified of his message hence the attempts to marginalize and minimize his views.

Bob
Prechter has forgotten more than these so called "pundits" have ever known. Remember in school the kids in class who always copied others' homework. Prechter was the kid that could and did do the homework, the characters you see on Fast Money were the one's who did the copying.

All in all,  a pretty good sentiment indicator (bullish extreme?) I would think. Me thinks
Prechter, who would be looking at it from just that angle, thinks the same.


Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Thursday, April 8, 2010

The Dumbest Guys in the Room

Are you watching some of the testimony today on propaganda TV?

Are you watching these panel members as well with their questions from a novel reminiscent of War and Peace. Seems that all take a page out of Ron Paul's book of talking for minutes yet asking nothing resulting in zero net gain.

Okay, so let me get a couple of things straight here in my mind here.

When things are going just swimmingly, when all is roses, you Mssrs. Rubin and Prince are simply brilliant.

When things fall apart and go to hell in a hand basket you Mssrs. Rubin and Prince are deeply sorry.

Do I understand that correctly? Mr. Rubin? How about you Mr. Prince?


And as for those esteemed panelists and their incessant tea bagging of the masters of the universe. Yeah, yeah, yeah we all get it. We understand how you all appreciate their service to our great nation of ours. We, the viewers, as well share the panelists appreciation that you could accommodate us and show up here today. Why how else would we be able to put on this Vaudevillian show for the rubes that the masses back home.

Someone tell me why guys like Prince and Rubin are not in leg irons and the pillory?


For those of you wondering what Bob Rubin's actually did at Citi while there need not wonder any more. His role was that of cheque casher. That is take the cheque he received from Citi to his own bank and deposit it.

But in the face of all that has happened Mr. Rubin and Mr. Prince are sorry. Deeply saddened they did not see this coming. They are so sorry they need to drown their sorrows in their tens and hundreds of millions in net worth garnered on the back of the populace more enamored with Dancing With the Stars than the greatest heist in world history.

I see nothing but a litany of lies, obfuscation, deflection and cover up from the thugs like Greenspan, Bernanke, Rubin, Prince, Mudd, Syron, Raines, Frank, Dodd, et al.

These thugs are adept at deflecting blame to others. That and doing their very best imitation of Sgt. Schultz from Hogans Heroes. For those of you who either are too young to remember or do not recall Sgt Schultz, the video below is him at his best. Watch it and then compare Rubin and Prince's performance to Schultz. Dead ringers for sure.







Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $8.49
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit Daimler ticker DAI @ $52.23 stop @ $52.23

Wednesday, April 7, 2010

Sweet Home Alabama

With apologies to Lynyrd Skynyrd, the title today introduces yet another excellent piece out in Rolling Stone magazine via Matt Taibbi called Looting Main Street which you can view below or click on the link provided. In it he outlines the disaster that has become Jefferson County, Alabama. Readers of this blog know my thoughts on this and can easily access them by clicking on Jefferson County link in the archives.

Matt goes into some detail outlining some of the specific parasites in this fiasco. Remember when you were a kid and you would turn over a rock or a piece of wood and all the creepy crawlers you would see underneath it. Now you start to understand the machinations of our system.


Rollingstone.com

Looting Main Street

How the nation's biggest banks are ripping off American cities with the same predatory deals that brought down Greece

MATT TAIBBI

Posted Mar 31, 2010 8:15 AM

Advertisement


If you want to know what life in the Third World is like, just ask Lisa Pack, an administrative assistant who works in the roads and transportation department in Jefferson County, Alabama. Pack got rudely introduced to life in post-crisis America last August, when word came down that she and 1,000 of her fellow public employees would have to take a little unpaid vacation for a while. The county, it turned out, was more than $5 billion in debt — meaning that courthouses, jails and sheriff's precincts had to be closed so that Wall Street banks could be paid.

As public services in and around Birmingham were stripped to the bone, Pack struggled to support her family on a weekly unemployment check of $260. Nearly a fourth of that went to pay for her health insurance, which the county no longer covered. She also fielded calls from laid-off co-workers who had it even tougher. "I'd be on the phone sometimes until two in the morning," she says. "I had to talk more than one person out of suicide. For some of the men supporting families, it was so hard — foreclosure, bankruptcy. I'd go to bed at night, and I'd be in tears."

Homes stood empty, businesses were boarded up, and parts of already-blighted Birmingham began to take on the feel of a ghost town. There were also a few bills that were unique to the area — like the $64 sewer bill that Pack and her family paid each month. "Yeah, it went up about 400 percent just over the past few years," she says.

The sewer bill, in fact, is what cost Pack and her co-workers their jobs. In 1996, the average monthly sewer bill for a family of four in Birmingham was only $14.71 — but that was before the county decided to build an elaborate new sewer system with the help of out-of-state financial wizards with names like Bear Stearns, Lehman Brothers, Goldman Sachs and JP Morgan Chase. The result was a monstrous pile of borrowed money that the county used to build, in essence, the world's grandest toilet — "the Taj Mahal of sewer-treatment plants" is how one county worker put it. What happened here in Jefferson County would turn out to be the perfect metaphor for the peculiar alchemy of modern oligarchical capitalism: A mob of corrupt local officials and morally absent financiers got together to build a giant device that converted human shit into billions of dollars of profit for Wall Street — and misery for people like Lisa Pack.

Advertisement


And once the giant shit machine was built and the note on all that fancy construction started to come due, Wall Street came back to the local politicians and doubled down on the scam. They showed up in droves to help the poor, broke citizens of Jefferson County cut their toilet finance charges using a blizzard of incomprehensible swaps and refinance schemes — schemes that only served to postpone the repayment date a year or two while sinking the county deeper into debt. In the end, every time Jefferson County so much as breathed near one of the banks, it got charged millions in fees. There was so much money to be made bilking these dizzy Southerners that banks like JP Morgan spent millions paying middlemen who bribed — yes, that's right, bribed, criminally bribed — the county commissioners and their buddies just to keep their business. Hell, the money was so good, JP Morgan at one point even paid Goldman Sachs $3 million just to back the fuck off, so they could have the rubes of Jefferson County to fleece all for themselves.

Birmingham became the poster child for a new kind of giant-scale financial fraud, one that would threaten the financial stability not only of cities and counties all across America, but even those of entire countries like Greece. While for many Americans the financial crisis remains an abstraction, a confusing mess of complex transactions that took place on a cloud high above Manhattan sometime in the mid-2000s, in Jefferson County you can actually see the rank criminality of the crisis economy with your own eyes; the monster sticks his head all the way out of the water. Here you can see a trail that leads directly from a billion-dollar predatory swap deal cooked up at the highest levels of America's biggest banks, across a vast fruited plain of bribes and felonies — "the price of doing business," as one JP Morgan banker says on tape — all the way down to Lisa Pack's sewer bill and the mass layoffs in Birmingham.

Once you follow that trail and understand what took place in Jefferson County, there's really no room left for illusions. We live in a gangster state, and our days of laughing at other countries are over. It's our turn to get laughed at. In Birmingham, lots of people have gone to jail for the crime: More than 20 local officials and businessmen have been convicted of corruption in federal court. Last October, right around the time that Lisa Pack went back to work at reduced hours, Birmingham's mayor was convicted of fraud and money-laundering for taking bribes funneled to him by Wall Street bankers — everything from Rolex watches to Ferragamo suits to cash. But those who greenlighted the bribes and profited most from the scam remain largely untouched. "It never gets back to JP Morgan," says Pack.

If you want to get all Glenn Beck about it, you could lay the blame for this entire mess at the feet of weepy, tree-hugging environmentalists. It all started with the Cahaba River, the longest free-flowing river in the state of Alabama. The tributary, which winds its way through Birmingham before turning diagonally to empty out near Selma, is home to more types of fish per mile than any other river in America and shelters 64 rare and imperiled species of plants and animals. It's also the source of one of the worst municipal financial disasters in American history.

Back in the early 1990s, the county's sewer system was so antiquated that it was leaking raw sewage directly into the Cahaba, which also supplies the area with its drinking water. Joined by well — intentioned citizens from the Cahaba River Society, the EPA sued the county to force it to comply with the Clean Water Act. In 1996, county commissioners signed a now-infamous consent decree agreeing not just to fix the leaky pipes but to eliminate all sewer overflows — a near-impossible standard that required the county to build the most elaborate, ecofriendly, expensive sewer system in the history of the universe. It was like ordering a small town in Florida that gets a snowstorm once every five years to build a billion-dollar fleet of snowplows.

Advertisement


The original cost estimates for the new sewer system were as low as $250 million. But in a wondrous demonstration of the possibilities of small-town graft and contract-padding, the price tag quickly swelled to more than $3 billion. County commissioners were literally pocketing wads of cash from builders and engineers and other contractors eager to get in on the project, while the county was forced to borrow obscene sums to pay for the rapidly spiraling costs. Jefferson County, in effect, became one giant, TV-stealing, unemployed drug addict who borrowed a million dollars to buy the mother of all McMansions — and just as it did during the housing bubble, Wall Street made a business of keeping the crook in his house. As one county commissioner put it, "We're like a guy making $50,000 a year with a million-dollar mortgage."

To reassure lenders that the county would pay its mortgage, commissioners gave the finance director — an unelected official appointed by the president of the commission — the power to automatically raise sewer rates to meet payments on the debt. The move brought in billions in financing, but it also painted commissioners into a corner. If costs continued to rise — and with practically every contractor in Alabama sticking his fingers on the scale, they were rising fast — officials would be faced with automatic rate increases that would piss off their voters. (By 2003, annual interest on the sewer deal had reached $90 million.) So the commission reached out to Wall Street, looking for creative financing tools that would allow it to reduce the county's staggering debt payments.

Wall Street was happy to help. First, it employed the same trick it used to fuel the housing crisis: It switched the county from a fixed rate on the bonds it had issued to finance the sewer deal to an adjustable rate. The refinancing meant lower interest payments for a couple of years — followed by the risk of even larger payments down the road. The move enabled county commissioners to postpone the problem for an election season or two, kicking it to a group of future commissioners who would inevitably have to pay the real freight.

But then Wall Street got really creative. Having switched the county to a variable interest rate, it offered commissioners a crazy deal: For an extra fee, the banks said, we'll allow you to keep paying a fixed rate on your debt to us. In return, we'll give you a variable amount each month that you can use to pay off all that variable-rate interest you owe to bondholders.

In financial terms, this is known as a synthetic rate swap — the spidery creature you might have read about playing a role in bringing down places like Greece and Milan. On paper, it made sense: The county got the stability of a fixed rate, while paying Wall Street to assume the risk of the variable rates on its bonds. That's the synthetic part. The trouble lies in the rate swap. The deal only works if the two variable rates — the one you get from the bank, and the one you owe to bondholders — actually match. It's like gambling on the weather. If your bondholders are expecting you to pay an interest rate based on the average temperature in Alabama, you don't do a rate swap with a bank that gives you back a rate pegged to the temperature in Nome, Alaska.

Not unless you're a fucking moron. Or your banker is JP Morgan.

In a small office in a federal building in downtown Birmingham, just blocks from where civil rights demonstrators shut down the city in 1963, Assistant U.S. Attorney George Martin points out the window. He's pointing in the direction of the Tutwiler Hotel, once home to one of the grandest ballrooms in the South but now part of the Hampton Inn chain.

"It was right around the corner here, at the hotel," Martin says. "That's where they met — that's where this all started."

Advertisement


They means Charles LeCroy and Bill Blount, the two principals in what would become the most important of all the corruption cases in Jefferson County. LeCroy was a banker for JP Morgan, serving as managing director of the bank's southeast regional office. Blount was an Alabama wheeler-dealer with close friends on the county commission. For years, when Wall Street banks wanted to do business with municipalities, whether for bond issues or rate swaps, it was standard practice to reach out to a local sleazeball like Blount and pay him a shitload of money to help seal the deal. "Banks would pay some local consultant, and the consultant would then funnel money to the politician making the decision," says Christopher Taylor, the former head of the board that regulates municipal borrowing. Back in the 1990s, Taylor pushed through a ban on such backdoor bribery. He also passed a ban on bankers contributing directly to politicians they do business with — a move that sparked a lawsuit by one aggrieved sleazeball, who argued that halting such legalized graft violated his First Amendment rights. The name of that pissed-off banker? "It was the one and only Bill Blount," Taylor says with a laugh.

Blount is a stocky, stubby-fingered Southerner with glasses and a pale, pinched face — if Norman Rockwell had ever done a painting titled "Small-Town Accountant Taking Enormous Dump," it would look just like Blount. LeCroy, his sugar daddy at JP Morgan, is a tall, bloodless, crisply dressed corporate operator with a shiny bald head and silver side patches — a cross between Skeletor and Michael Stipe.

The scheme they operated went something like this: LeCroy paid Blount millions of dollars, and Blount turned around and used the money to buy lavish gifts for his close friend Larry Langford, the now-convicted Birmingham mayor who at the time had just been elected president of the county commission. (At one point Blount took Langford on a shopping spree in New York, putting $3,290 worth of clothes from Zegna on his credit card.) Langford then signed off on one after another of the deadly swap deals being pushed by LeCroy. Every time the county refinanced its sewer debt, JP Morgan made millions of dollars in fees. Even more lucrative, each of the swap contracts contained clauses that mandated all sorts of penalties and payments in the event that something went wrong with the deal. In the mortgage business, this process is known as churning: You keep coming back over and over to refinance, and they keep "churning" you for more and more fees. "The transactions were complex, but the scheme was simple," said Robert Khuzami, director of enforcement for the SEC. "Senior JP Morgan bankers made unlawful payments to win business and earn fees."

Given the shitload of money to be made on the refinancing deals, JP Morgan was prepared to pay whatever it took to buy off officials in Jefferson County. In 2002, during a conversation recorded in Nixonian fashion by JP Morgan itself, LeCroy bragged that he had agreed to funnel payoff money to a pair of local companies to secure the votes of two county commissioners. "Look," the commissioners told him, "if we support the synthetic refunding, you guys have to take care of our two firms." LeCroy didn't blink. "Whatever you want," he told them. "If that's what you need, that's what you get. Just tell us how much."

Just tell us how much. That sums up the approach that JP Morgan took a few months later, when Langford announced that his good buddy Bill Blount would henceforth be involved with every financing transaction for Jefferson County. From JP Morgan's point of view, the decision to pay off Blount was a no-brainer. But the bank had one small problem: Goldman Sachs had already crawled up Blount's trouser leg, and the broker was advising Langford to pick them as Jefferson County's investment bank.

The solution they came up with was an extraordinary one: JP Morgan cut a separate deal with Goldman, paying the bank $3 million to fuck off, with Blount taking a $300,000 cut of the side deal. Suddenly Goldman was out and JP Morgan was sitting in Langford's lap. In another conversation caught on tape, LeCroy joked that the deal was his "philanthropic work," since the payoff amounted to a "charitable donation to Goldman Sachs" in return for "taking no risk."

That such a blatant violation of anti-trust laws took place and neither JP Morgan nor Goldman have been prosecuted for it is yet another mystery of the current financial crisis. "This is an open-and-shut case of anti-competitive behavior," says Taylor, the former regulator.

With Goldman out of the way, JP Morgan won the right to do a $1.1 billion bond offering — switching Jefferson County out of fixed-rate debt into variable-rate debt — and also did a corresponding $1.1 billion deal for a synthetic rate swap. The very same day the transaction was concluded, in May 2003, LeCroy had dinner with Langford and struck a deal to do yet another bond-and-swap transaction of roughly the same size. This time, the terms of the payoff were spelled out more explicitly. In a hilarious phone call between LeCroy and Douglas MacFaddin, another JP Morgan official, the two bankers groaned aloud about how much it was going to cost to satisfy Blount:

Advertisement


LeCroy: I said, "Commissioner Langford, I'll do that because that's your suggestion, but you gotta help us keep him under control. Because when you give that guy a hand, he takes your arm." You know?

MacFaddin: [Laughing] Yeah, you end up in the wood-chipper.

All told, JP Morgan ended up paying Blount nearly $3 million for "performing no known services," in the words of the SEC. In at least one of the deals, Blount made upward of 15 percent of JP Morgan's entire fee. When I ask Taylor what a legitimate consultant might earn in such a circumstance, he laughs. "What's a 'legitimate consultant' in a case like this? He made this money for doing jack shit."

As the tapes of LeCroy's calls show, even officials at JP Morgan were incredulous at the money being funneled to Blount. "How does he get 15 percent?" one associate at the bank asks LeCroy. "For doing what? For not messing with us?"

"Not messing with us," LeCroy agrees. "It's a lot of money, but in the end, it's worth it on a billion-dollar deal."

That's putting it mildly: The deals wound up being the largest swap agreements in JP Morgan's history. Making matters worse, the payoffs didn't even wind up costing the bank a dime. As the SEC explained in a statement on the scam, JP Morgan "passed on the cost of the unlawful payments by charging the county higher interest rates on the swap transactions." In other words, not only did the bank bribe local politicians to take the sucky deal, they got local taxpayers to pay for the bribes. And because Jefferson County had no idea what kind of deal it was getting on the swaps, JP Morgan could basically charge whatever it wanted. According to an analysis of the swap deals commissioned by the county in 2007, taxpayers had been overcharged at least $93 million on the transactions.

JP Morgan was far from alone in the scam: Virtually everyone doing business in Jefferson County was on the take. Four of the nation's top investment banks, the very cream of American finance, were involved in one way or another with payoffs to Blount in their scramble to do business with the county. In addition to JP Morgan and Goldman Sachs, Bear Stearns paid Langford's bagman $2.4 million, while Lehman Brothers got off cheap with a $35,000 "arranger's fee." At least a dozen of the county's contractors were also cashing in, along with many of the county commissioners. "If you go into the county courthouse," says Michael Morrison, a planner who works for the county, "there's a gallery of past commissioners on the wall. On the top row, every single one of 'em but two has been investigated, indicted or convicted. It's a joke."

The crazy thing is that such arrangements — where some local scoundrel gets a massive fee for doing nothing but greasing the wheels with elected officials — have been taking place all over the country. In Illinois, during the Upper Volta-esque era of Rod Blagojevich, a Republican political consultant named Robert Kjellander got 10 percent of the entire fee Bear Stearns earned doing a bond sale for the state pension fund. At the start of Obama's term, Bill Richardson's Cabinet appointment was derailed for a similar scheme when he was governor of New Mexico. Indeed, one reason that officials in Jefferson County didn't know that the swaps they were signing off on were shitty was because their adviser on the deals was a firm called CDR Financial Products, which is now accused of conspiring to overcharge dozens of cities in swap transactions. According to a federal antitrust lawsuit, CDR is basically a big-league version of Bill Blount — banks tossed money at the firm, which in turn advised local politicians that they were getting a good deal. "It was basically, you pay CDR, and CDR helps push the deal through," says Taylor.

In the end, though, all this bribery and graft was just the table-setter for the real disaster. In taking all those bribes and signing on to all those swaps, the commissioners in Jefferson County had ­basically started the clock on a financial time bomb that, sooner or later, had to explode. By continually refinancing to keep the county in its giant McMansion, the commission had managed to push into the future that inevitable day when the real bill would arrive in the mail. But that's where the mortgage analogy ends — because in one key area, a swap deal differs from a home mortgage. Imagine a mortgage that you have to keep on paying even after you sell your house. That's basically how a swap deal works. And Jefferson County had done 23 of them. At one point, they had more outstanding swaps than New York City.

Advertisement


Judgment Day was coming — just like it was for the Delaware River Port Authority, the Pennsylvania school system, the cities of Detroit, Chicago, Oakland and Los Angeles, the states of Connecticut and Mississippi, the city of Milan and nearly 500 other municipalities in Italy, the country of Greece, and God knows who else. All of these places are now reeling under the weight of similarly elaborate and ill-advised swaps — and if what happened in Jefferson County is any guide, hoo boy. Because when the shit hit the fan in Birmingham, it really hit the fan.

For Jefferson County, the deal blew up in early 2008, when a dizzying array of penalties and other fine-print poison worked into the swap contracts started to kick in. The trouble began with the housing crash, which took down the insurance companies that had underwritten the county's bonds. That rendered the county's insurance worthless, triggering clauses in its swap contracts that required it to pay off more than $800 million of its debt in only four years, rather than 40. That, in turn, scared off private lenders, who were no longer ­interested in bidding on the county's bonds. The banks were forced to make up the difference — a service for which they charged enormous penalties. It was as if the county had missed a payment on its credit card and woke up the next morning to find its annual percentage rate jacked up to a million percent. Between 2008 and 2009, the annual payment on Jefferson County's debt jumped from $53 million to a whopping $636 million.

It gets worse. Remember the swap deal that Jefferson County did with JP Morgan, how the variable rates it got from the bank were supposed to match those it owed its bondholders? Well, they didn't. Most of the payments the county was receiving from JP Morgan were based on one set of interest rates (the London Interbank Exchange Rate), while the payments it owed to its bondholders followed a different set of rates (a municipal-bond index). Jefferson County was suddenly getting far less from JP Morgan, and owing tons more to bondholders. In other words, the bank and Bill Blount made tens of millions of dollars selling deals to local politicians that were not only completely defective, but blew the entire county to smithereens.

And here's the kicker. Last year, when Jefferson County, staggered by the weight of its penalties, was unable to make its swap payments to JP Morgan, the bank canceled the deal. That triggered one-time "termination fees" of — yes, you read this right — $647 million. That was money the county would owe no matter what happened with the rest of its debt, even if bondholders decided to forgive and forget every dime the county had borrowed. It was like the herpes simplex of loans — debt that does not go away, ever, for as long as you live. On a sewer project that was originally supposed to cost $250 million, the county now owed a total of $1.28 billion just in interest and fees on the debt. Imagine paying $250,000 a year on a car you purchased for $50,000, and that's roughly where Jefferson County stood at the end of last year.

Last November, the SEC charged JP Morgan with fraud and canceled the $647 million in termination fees. The bank agreed to pay a $25 million fine and fork over $50 million to assist displaced workers in Jefferson County. So far, the county has managed to avoid bankruptcy, but the sewer fiasco had downgraded its credit rating, triggering payments on other outstanding loans and pushing Birmingham toward the status of an African debtor state. For the next generation, the county will be in a constant fight to collect enough taxes just to pay off its debt, which now totals $4,800 per resident.

The city of Birmingham was founded in 1871, at the dawn of the Southern industrial boom, for the express purpose of attracting Northern capital — it was even named after a famous British steel town to burnish its entrepreneurial cred. There's a gruesome irony in it now lying sacked and looted by financial vandals from the North. The destruction of Jefferson County reveals the basic battle plan of these modern barbarians, the way that banks like JP Morgan and Goldman Sachs have systematically set out to pillage towns and cities from Pittsburgh to Athens. These guys aren't number-crunching whizzes making smart investments; what they do is find suckers in some municipal-finance department, corner them in complex lose-lose deals and flay them alive. In a complete subversion of free-market principles, they take no risk, score deals based on political influence rather than competition, keep consumers in the dark — and walk away with big money. "It's not high finance," says Taylor, the former bond regulator. "It's low finance." And even if the regulators manage to catch up with them billions of dollars later, the banks just pay a small fine and move on to the next scam. This isn't capitalism. It's nomadic thievery.

[From Issue 1102 — April 15, 2010]


Thanks for the read Matt, very much appreciated.


Utterly pathetic what we have become here. But fear not as we now resume this nations regularly scheduled programming of Idol. Survivor, and Dancing with the Stars. Can you imagine the furor and outrage amongst the masses if that were interrupted. I cannot bear the thought of the fallout.

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $8.49
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit Daimler ticker DAI @ $52.23 stop @ $52.23