Prudens Speculari

Some Fundamentals?

2012-01-26T13:28:00.007-05:00

Interesting piece from #CharlesBiderman of Trimtabs on some underlying fundamentals of this market. Amazing how the tail, (the FIRE economy), thinks its wags the dog (the economy). You may want to juxtapose Biderman's comments with those from Bespoke a few days ago, considering the foundations of each's argument.

Cheaper Than They've Been in Two Decades huh?

2012-01-24T10:42:00.014-05:00

I was down in Palm Beach over the weekend to attend an event held at the Breakers. It was my first visit to the area which I enjoyed thoroughly. I must tell you that in addition to all the exotic Ferrari, Bentley and Jaguars I saw an awful lot of vacant commercial space down there. Lots of it.

While in Palm Beach I chatted with a friend while down there who likes to read this blog who asked me. "Whats up? You haven't been posting much."

No doubt about it.

I have to admit I have little to say. People who know me realize this is something because I most usually always have something to say! Lets put aside for a moment the fact that the last time I felt this way, with very little to say, was during the culmination of both the tech bubble and the housing bubble. I'm not trying to be Gary Kaminski-esque here pounding my chest while showering myself with rose petals over my great call but it is simply a statement of fact.

I truly believe that free markets are no longer. This market has been so manipulated and distorted via Fed interventions, free money via the Fed to the too big to fail banks, high frequency trading, and above all else a virtual lawless environment that would make Al Capone blush were he alive.

I believe the elite know the ship is sinking and are stealing anything not nailed down. But you know that already and if not, now you do.

I have been trying to grasp exactly what it is the bulls are so excited about.
Earnings?
Job growth?
Housing?
Rates?
Cheap energy?
World peace?

What are the fundamentals that are so compelling as to make one want to own this market. What are the fundamentals underlying that would provoke Bespoke Investment to put out a piece Stocks are Cheaper Than They've Been in 2 Decades. The piece by strategist Paul Hickey cites among other things:

"The S&P500 is currently trading below its historical average P/E and P/B ratios, and these ratios are also at their lowest levels in the careers of a large percentage of money managers."

Regarding book value, you must forgive me if I simply take a pass on the fiction that book value in corporate America has become.

Now for those earnings.

There is no mention but I assume Bespoke is using, like the rest of Wall St., operating earnings as opposed to reported earnings. For those unaware reported earnings are GAAP earnings and operating earnings are GAAP earnings that exclude "write offs".

I like to refer to write offs -which are supposed to be one time events but seem to occur quarter after quarter- as bad stuff or bonus destroyers for management. Think 'Lucy you got some 'splaining to do' and you understand write offs perfectly.

I can already hear you asking; "Why would someone use operating earnings that exclude write offs? Aren't write offs a factual event. Of course they are. But somewhere about the late 80's as stock valuations went up Wall St. starting using operating earnings. Then in the late 90's with no way to justify the stratospheric levels of tech stock valuations and most stocks in general, the Wall St. switch to operating earnings become 'official'. It was necessary 'cover' Henry Blodget and the myriad of other Walll St. charlatans masquerading as reputable analysts used to flog pure dog shit to their customers.

You don't agree?

Okay, then how about the fact that operating earnings are notoriously unreliable with studies showing them missing the estimated targets by about 25% over the last ten to 15 years. You don't get to hear that from paid Wall St. shills as it might interfere with their bonus pool. I haven't even mentioned the revisions that invariably come out.

Take note Bespoke's last comment that these ratios are at the lowest levels in 'the careers of most money managers'. Not lowest levels in history of the markets or the sector but careers of most money managers. This is a justification in a public piece by a Wall St. firm? You gotta be kidding me? So the inexperience of the crowd becomes part of the justification for buying stocks. I won't be holding my breath for Bespoke's piece to avoid markets as stocks are at the highest levels in the careers of most money managers.

This whole thing reminds me of two things.

First it reminds me of the time I came home with a C on a test. My father asked me how I did and I replied that I got the highest mark it the class, (this was true!) He countered that's not what he had asked. I then told him I got a C to which he replied. "Great! You're the smartest of a bunch of dummies."

And secondly, reminds me of is my grandfather speaking of the go-go markets of the 60's where the phrase 'gotta get me a kid' was coined. He and many other experienced brokers had clients leave him due to their refusal to purchase shares which many experienced in the market thought were outrageously valued.

Well, Bespoke goes on in their piece to point out that;

"At the end of 2011, the S&P 500 was yielding 13 percent more than the 10-Year US Treasury,"

Do you think there is a reason equities are yielding so much. Do you think there may be some risk attached to them?

Suffice to say that, when one pulls the covers back on Bespoke's facts justifying the cheapest equity valuations in 2 decades, I haven't much faith.

Has #CronyCapitalism Won?

2012-01-23T13:07:00.006-05:00

I've called it #CronyCapitalism for some time. But don't take my word for it. Watch what David Stockman has to say about it in excellent video below. So has Crony Capitalism won? I think so and so does Stockman who has a new book coming up entitled The Triumph of Crony Capitalism.

Bought and Paid For

2012-01-19T10:20:00.009-05:00

I came across the following graphic courtesy of OpenSecrets via ZeroHedge, that aptly illustrate what is transpiring around us. The complete show is bought and paid for. They redacted the names above the last 2 columns. The middle one is Barrack Obama and the far right one is George Bush. Note how little these corporations, oops I mean people (right Mitt?) discriminate.

Anyone still wondering why there have been no prosecutions across Wall St. can visually see why.

You can click on the picture to enlarge it.

Yes Colin, Something Definitely is Amiss

2011-12-30T18:15:00.008-05:00

An edited version of the article below by #ColinMcIntosh which originally appeared in @dailypaul here appeared in today's opinion section of the Miami Herald which you can view here. It's well worth your time and on a happy note if Colin is any reflection of our nations youth, we may just stand a chance.

Well done Colin.

To the GOP Establishment: Insult Ron Paul Supporters at Your Own Risk

-A Letter of Warning to our Party "Leaders"

“Don’t tread on me.”

Recently, something’s been amiss in the Mainstream Media when discussing the topic of Ron Paul’s candidacy. As the Texas congressman’s support has surged to 15% nationally in the latest Washington Post poll, the Very Serious Republicans who write Very Serious Columns and give their opinions on Very Serious Shows have changed their tune. They aren’t as confident, as cocky, or as arrogant as they used to be when predicting the 2012 presidential election.

Now, they sound scared; they sound nervous; they sound shaken. But most importantly, they sound resolute that they, and not their audience, represent the opinions of mainstream America. They are wrong, and their gamble will be costly.

In the absence of facts to support the Establishment candidates, the media has turned to personal insults, childish mockery, and deliberate misinterpretation of Dr. Paul’s lessons. Their goal, quite shamefully, is to convince Ron Paul supporters that the candidate that they believe in has no chance of winning the nomination, let alone the general election. Here are some of this past week’s headlines from around the web:

“Huckabee slams Ron Paul, says he has ‘no chance’ to win Republican nomination”- The Hill

“Ron Paul can’t be allowed to win Iowa”- Daily Caller

“Why Ron Paul Can’t Win”- Wall Street Journal

“If Ron Paul wins Iowa, does that make the state irrelevant?”- Christian Science Monitor

I have written before that this type of overt pressure from our media to change your vote because “your candidate can’t win” constitutes a form of disenfranchisement. Despite Paul’s rise to the front of the pack in Iowa, the Media still ignores that his national support from Republicans has risen from 9% to 15% in a month (Washington Post/ABC poll 12/18/11). They refuse to report the fact that he only loses 49-44 in a hypothetical race against Obama, down from 52-42 just one month ago. They will never tell us that 21% of polled Americans chose to vote for Ron Paul as a third party candidate over the hypothetical choices of President Obama or Romney/Gingrich, and this last statistic leads me to my main point: if the GOP nominates anyone besides Ron Paul, Barack Obama will win the 2012 election.

Why?

Currently, Establishment Republicans are issuing an obvious warning to Paul’s base: vote for Romney, or the Democrats will win in November. Clearly, they hope this ominous bit of advice also reaches the millions of Americans who are still learning about Ron Paul’s views. Well, Dr. Paul’s supporters have a retort: we don’t give a damn.

There are worse things than having a Democrat in the White House, and disenfranchisement is among them. We will not vote for whom we are told. We will not vote for a candidate who espouses a policy of preemptive war. We will not vote for the continuation of a flawed, costly, discriminatory drug war. We will not vote for the circumnavigation of the Constitution. We will not vote for a candidate (Romney) who has received just 10% of his campaign donations from actual people (from opensecrets.org). And we will not feel remorse for a Republican party that has abandoned us.

I am a registered Republican, but when I listen to my so-called party leaders, I become infuriated and visibly despondent. When did preemptive war become our national defense? When did the desire to police the world become so mainstream that we forgot that our nation was birthed from a

repugnance to imperialism? When did we concede that the federal government has the right to regulate our lives to the point of quiet despotism? And most importantly, when did we become convinced that our votes and voices only matter if we support the perceived frontrunner?

As an advocate of liberty, I will vote on principle over party, every time. If the Republican party took the time to educate its members on the issues, rather than simply bullying them into submission, their party wouldn’t be so splintered right now, and perhaps Dr. Paul would have a unified force behind him heading into November. Instead, GOP leaders seem committed to promoting the status quo, to increasing their own power and influence, and to keeping the $upport of moneyed interests. If the GOP Establishment is successful in convincing Republicans to nominate Romney instead of Paul, and Paul does indeed run as an Independent, Obama will win with 45% of the vote, and the GOP will have no one to blame but themselves.

-Colin M. is a senior at the Goizueta Business School at Emory University in Atlanta, GA, and will graduate this spring with bachelor degrees in economics and business administration.

Imagine the Boot on the Other Foot

2011-12-22T10:36:00.008-05:00

#RonPaul argues for facts over fear, sound money over fiat, and the Constitution. This short (3 minute) video is dedicated to all the warfare-economy chickenhawks who think "the terrorists" hate us for our Freedoms and our Liberties. So yes, imagine the shoe, ooops make that boot on the other foot. Please share this with your friends, family and loved ones.

Neocons React to Rising #RonPaul Poll Numbers

2011-12-15T13:25:00.003-05:00

Newly released video of neocons (and warmongering chickenhawks) reaction to Ron Paul's rising numbers in the polls. Much thx to R.G for bringing this to my attention.

Founding Fathers Candidate

2011-12-07T19:37:00.007-05:00

#RonPaul. I am certain the founding fathers of this great nation would be vigorously supporting him for President. I also think they would agree wholeheartedly, which I do, with Mr. Paul's litmus test assertion to the warmongers. That being something I have said for years, will they send their kids and grandkids into battle to risk life and limb.

Please enjoy this short video and please share it with your friends and family. Here is the link to the video just in case the one below doesn't play.

Need Dramamine?

2011-12-07T10:08:00.007-05:00

The cats over at #ZeroHedge (thx guys!) relay what #Art Cashin of #UBS had to say (need Dramamine?) regarding this market. Via UBS, here is how trader, #Gary Kaltbaum described the market recently.

Crash into early August, then hit a low where market rallied up 10% in six days.
We then dropped about 7% in 3 days.
We then rallied up about 9% in 7 days.
And then in 2 days we dropped about 8%.
In 2 days we rallied up 5.5%.
And then next 2 days we dropped 6%.
And the next 5 days we rallied up 7%.
And the next 3 days we dropped about 9%.
Next, we rallied up about 7%.
The next 4 days we dropped about 10%.Culminating with the wash out on Oct 4.
And then in 5 days we rallied up 11%.
Sat around.had two big gaps into the highs of late August and then we did two big gaps down.
A little rally up.
Another big day down.
Within a day, a gap up. Then another big drop.
Went down about 9% in seven days.
And this week on two days that gapped up, a total of about 640 points.
We finished with a rally this week of 8% and this one was for the books. You couldn't get in because they were gaps.

Wow.

Can you spell high frequency trading robots?

Can you spell a market that only someone trading with someone elses' capital (either investors or taxpayers) could stomach?

Can you spell a broken market?

This is all the fruit we bear from a cronycapitalist, lawless, free for all. Enjoy it while it lasts - and make sure like the elite in charge you get yours while you can - because it can't and it won't.

#HenryPaulson Gave Hedgies Advance Warning

2011-11-29T10:21:00.010-05:00

I want you to read this excellent Bloomberg Businessweek article, How Paulson Gave Hedge Funds Advance Word of Fannie Mae Rescue. After reading it you may begin to understand why it is called #cronycapitalism. You may begin to understand why I believe in disgorgement of ill gotten gains, and finally you may begin to understand why I believe in our need for the guillotine as a form of punishment. Kudos to Michael Serrill and Jonathan Neumann for having the onions to follow and put out a story like this even if it is 3 years late. Better late than never.

November 29, 2011

How Paulson Gave Hedge Funds Advance Word of Fannie Mae Rescue

Story tools

Nov. 29 (Bloomberg) -- Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co.

Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding.

Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable.

“If you have a bazooka, and people know you have it, you're not likely to take it out,” he said.

On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie's books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.

A Different Message

At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.

Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives -- at least five of them alumni of Goldman Sachs Group Inc., of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.

After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.

Stock Wipeout

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.

The fund manager says he was shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.

There's no evidence that they did so after the meeting; tracking firm-specific short stock sales isn't possible using public documents.

And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.

Rampant Rumors

At the time, rumors about Fannie and Freddie were tearing through the markets. The government-chartered firms' mandate, which continues today, is to buy mortgages from banks and repackage them into securities either for their own portfolios or to sell to others. The banks can then use the proceeds from those transactions to write new mortgages.

By mid-2008, delinquencies and foreclosures were soaring, and the GSEs set aside billions of dollars against future losses. In the first six months of 2008, they racked up net losses of $5.46 billion as they slashed dividends and marked down the values of their huge inventories of mortgage-backed securities.

On Wall Street, confusion reigned. UBS AG analyst Eric Wasserstrom on July 10 cut his share price target on Freddie to $10 from $28. The next day, Citigroup Inc. analyst Bradley Ball reiterated a “buy” recommendation on the two GSEs. On July 12, the Times of London, without citing a source, reported that Paulson was contemplating a $15 billion capital injection into the firms.

Shares Rally

At the time Paulson privately addressed the fund managers at Eton Park, he had given the market some positive signals -- and the GSEs' shares were rallying, with Fannie Mae's nearly doubling in four days.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, can't understand why Paulson felt impelled to share the Treasury Department's plan with the fund managers.

“You just never ever do that as a government regulator -- transmit nonpublic market information to market participants,” says Black, who's a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”

Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern.

“What is this but crony capitalism?” she asks. “Most people have had their fill of it.”

A Lawyer's Advice

The fund manager who described the meeting left after coffee and called his lawyer. The attorney's quick conclusion: Paulson's talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.

Seven weeks later, the boards of the two firms voted to go into conservatorship under the newly created Federal Housing Finance Agency. The takeover was effective Sept. 6, a Saturday, and the companies' stock prices dropped below $1 the following Monday, from $14.13 for Fannie Mae and $8.75 for Freddie Mac on the day of the meeting. Various classes of preferred shares lost upwards of 85 percent of their value.

A complete list of those at the Eton Park meeting isn't publicly available. A Treasury Department roster of those expected to attend, obtained by Bloomberg News under the Freedom of Information Act, includes Ripplewood Holdings LLC CEO Timothy Collins, who says, through a spokesman, that he didn't participate.

Storied Investors

At least one fund manager who wasn't listed in the FOIA document, Daniel Stern of Reservoir Capital Group, did attend, says the manager who described the meeting.

The gathering comprised some of Wall Street's most storied investors. Mindich, a former chief strategy officer of New York- based Goldman Sachs, started Eton Park in 2004 with $3.5 billion, at the time one of the biggest hedge-fund launches ever. Singh, a former head of Goldman's proprietary-trading desk, also began his fund in 2004, in partnership with private- equity firm Texas Pacific Group Ltd.

Lone Pine's Mandel worked as a retail analyst at Goldman before joining Julian Robertson's Tiger Management LLC, one of the most successful hedge funds of the 1980s and 1990s. He started his own firm in 1997. Och was co-head of U.S. equity trading at Goldman before founding Och-Ziff in 1994. The publicly listed firm managed $28.9 billion in November.

Goldman Alums

One other Goldman Sachs alumnus was at the meeting: Frank Brosens, founder and principal of Taconic Capital Advisors LP, who worked at Goldman as an arbitrageur and who was a protege of Robert Rubin, who went on to become Treasury secretary.

Non-Goldman Sachs alumni who attended included short seller James Chanos of Kynikos Associates Ltd., who helped uncover the Enron Corp. accounting fraud; GSO Capital Partners LP co-founder Bennett Goodman, who sold his firm to Blackstone Group LP in early 2008; Roger Altman, chairman and founder of New York investment bank Evercore Partners Inc.; and Steven Rattner, a co-founder of private-equity firm Quadrangle Group LLC, who went on to serve as head of the U.S. government's Automotive Task Force.

Another person in attendance: Michele Davis, then-assistant secretary for public affairs at the Treasury Department, who now represents Paulson as a managing partner at public relations firm Brunswick Group Inc. In an e-mail response to Bloomberg Markets, she referred all questions to Paulson's book on the financial crisis, “On the Brink” (Business Plus, 2010), which makes no mention of the Eton Park meeting.

Paulson Thinktank

Paulson is now a distinguished senior fellow at the University of Chicago, where he's starting the Paulson Institute, a think tank focused on U.S.-Chinese relations.

Eton Park's Mindich, Lone Pine's Mandel, TPG-Axon's Singh and Och-Ziff's Och all declined to comment through spokesmen. Reservoir's Stern didn't return phone calls. Altman, through a spokesman, confirmed his attendance and declined to comment further.

Brosens and Rattner both confirmed in e-mails that they had attended and said they couldn't recall details. They didn't respond when asked whether they traded in Fannie Mae- or Freddie Mac-related instruments after the meeting. Chanos declined to comment.

A Blackstone spokesman confirmed in an e-mail that GSO's Goodman attended the meeting. Blackstone doesn't believe market- sensitive information was discussed, and in any event Blackstone didn't take any positions in Fannie or Freddie between the luncheon and Sept. 6, he wrote.

Strong Short Interest

Records show that many investors were betting against Fannie Mae and Freddie Mac at the time. According to Data Explorers Ltd., a London-based research firm, short interest in Fannie Mae shares rose sharply in July, to 163 million shares on July 14 from 86.3 million shares on July 9.

Short Interest continued to rise, to 240 million shares, on the day of the Eton Park meeting; it hit 262 million on July 24, its high for the year. Freddie Mac's short interest showed a similar trajectory.

Revelations about the meeting come at a sensitive time.

“The optics are awful; there's no doubt about it,” says professor Larry Ribstein of the University of Illinois College of Law in Champaign. “Everyone knows that insider trading is a huge issue.”

Rajat Gupta, the former head of McKinsey & Co. who was a member of Goldman's board, was indicted by a federal grand jury on Oct. 26 for disclosing nonpublic information on Goldman and other companies to Raj Rajaratnam, a hedge-fund manager who earlier in October was sentenced to 11 years in prison for profiting from inside information provided by a web of industry insiders, including Gupta.

Gupta has pleaded not guilty.

LightSquared Probe

Several U.S. agencies face increased scrutiny in Congress for possible improper disclosures or ties to hedge funds. Senators are looking into whether the U.S. Department of Education divulged nonpublic details about new rules being considered to regulate for-profit educational institutions to outsiders, including Steven Eisman, former managing director of FrontPoint Partners LLC, who held short positions in the sector.

Education Department spokesman Justin Hamilton denies any impropriety. Eisman hasn't been accused of any wrongdoing.

In October, Republican Senator Charles Grassley of Iowa asked hedge-fund manager Philip Falcone for copies of all communications between his Harbinger Capital Partners and the Department of Commerce, the Federal Communications Commission and the White House. Grassley is looking into whether Falcone improperly sought to influence regulators and the White House while seeking approvals for LightSquared Inc., the company constructing a broadband wireless network his fund is bankrolling.

‘Government Information'

Robin Roger, general counsel for the fund's management firm, says any assertion that the fund or LightSquared tried to improperly influence regulators is unfounded.

For government officials, the leaking of market-sensitive information, even if inadvertent, represents an ethical minefield.

“There's a lot of government information out there, and the hedge funds are trying to get it,” says Richard Painter, a law professor at the University of Minnesota who advised the Bush administration on Paulson's sale of his Goldman stock when he became Treasury secretary. “It's a huge problem that has to be addressed.”

The rules for what can or cannot be disclosed by government officials are often either unclear or nonexistent.

Tipping Hands

“The bottom line is that senior-level people in Washington, in the name of keeping in touch with their stakeholders, are tipping their hands,” says Adam Zagorin, a senior fellow at the Project on Government Oversight, a Washington watchdog group. “You can't prosecute them for insider trading if they didn't trade the shares. You may not be able to even reprimand them. What the hell are the rules?”

An official such as Paulson has no legal obligation to keep material nonpublic information to himself, says Phillip Kaplan, partner for litigation at Manatt Phelps & Phillips LLP, where he specializes in securities and class-action cases.

“I don't think a government person is liable,” he says. “He didn't profit from the information or trade on it.”

In the rapidly evolving world of insider-trading prosecutions, that could change, says the University of Illinois's Ribstein, adding that the U.S. Securities and Exchange Commission is taking a broader view of what constitutes insider trading. SEC Enforcement Director Robert Khuzami, who can bring only civil cases, and the Justice Department, which can mount criminal prosecutions, have cast their net wide, Ribstein says.

Small Players Sued

In addition to going after big names like Rajaratnam and Gupta, the authorities are suing and indicting smaller players who might not have been prosecuted in the past, like accountants and analysts at so-called expert networks, who sell their expertise to hedge funds.

The University of Missouri's Black says there's no question that the plan to take over Fannie and Freddie -- however uncertain -- was material nonpublic information that could not be lawfully traded on. “What Paulson said put those managers in an untenable position,” he says. “They were exposed to all kinds of liabilities.”

The situation also generates some sympathy for Paulson.

“It seems to me, you've got to cut the guy some slack, even if he tipped his hand,” says William Poole, a former president of the Federal Reserve Bank of St. Louis. “How do you prepare the market for the fact that policy has changed without triggering the very crisis that you're trying to avoid? What is he supposed to say without misleading these people?”

Market Insights

Poole says government officials need to communicate with industry participants in order to gain insights into market conditions and gauge likely reaction to interventions.

Black says the Eton Park meeting was the wrong way to communicate to the markets.

“Wink, wink, nod, nod is no way to approach sensitive information,” he says.

Paulson often contacted Wall Street participants throughout his tenure, according to his calendar. On that July trip to New York alone, he talked to Lehman Brothers Holdings Inc. CEO Richard Fuld, Washington Mutual Inc. CEO Kerry Killinger and Citigroup senior adviser Rubin.

Morgan Stanley and BlackRock Inc. both helped the Federal Reserve and OCC prepare the reports on Fannie Mae and Freddie Mac that Paulson told the New York Times would instill confidence the morning of the Eton Park meeting.

‘Unsafe and Unsound'

Paulson learned by mid-August that the Federal Reserve had found the GSEs “unsafe and unsound,” he told the Financial Crisis Inquiry Commission, which was appointed by President Barack Obama and Congress to probe the causes of the financial collapse.

“We'd been prepared for bad news, but the extent of the problems was startling,” he wrote in “On the Brink.”

On Sept. 6, when the GSEs' boards agreed to have their companies placed in conservatorship, full-year 2008 losses were projected to reach as much as $50 billion for Fannie Mae and $32 billion for Freddie Mac. In October 2011, the FHFA estimated the cost to taxpayers of rescuing the firms at $124 billion through 2014.

The manager who described the Eton Park meeting says he also discussed it with an investigator from the FCIC. The discussion was confirmed by a former FCIC employee.

That manager says he ended up profiting from his Fannie Mae and Freddie Mac positions because he was already short the stocks. On his lawyer's advice, he stopped covering his short positions and rode Fannie and Freddie shares all the way to the bottom.

--Editors: Michael Serrill, Jonathan Neumann

What If.....

2011-11-28T09:35:00.003-05:00

#Judge Napolitano asks the question, What if...?

UC Davis Pepper Spray Incident

2011-11-22T15:07:00.004-05:00

#Matt Taibbi has an excellent piece on his blog UC Davis Pepper-Spray Incident Reveals Weakness Up Top. Most of you have probably seen the video of the police pepper spraying the peaceful protestors but Matt puts some powerful words to the video. Please check it out. It is must reading.

Well done Matt!

Who will do 5 years in Exchange for a 15 million Nest Egg?

2011-11-18T14:08:00.008-05:00

Dealbook has as great piece today on Yale educated orthopedic surgeon turned star hedge fund manager Joseph F. Skowron. The piece Hedge Fund Manager is sentenced to 5 Years says it all.

It is a great read. You find out how Mr. Skowron used his medical knowledge to earn millions of dollars trading health care stocks. You also learn via the article how Mr. Skowron bribed a French doctor into leaking him confidential results about clinical drug trials on a company whose stock Mr. Skowron's fund owned. You will also learn how Skowron lied to the SEC in an attempt to cover up his crimes.

Now some may dispute this bribing of a doctor for info as simply the new world order on Wall St. also known as expert networks. But rather than split hairs here over minutia at Prudens Speculari I will focus on the results of which Skowron will serve a 5 year prison term and pay about $8million in "forfeiture and fines" to the government.

Here is what I want to focus upon:

Mr. Skowron earned more than $32 million at FrontPoint, according to the government. Even after paying his roughly $8 million in penalties, Mr. Skowron has a net worth in excess of $15 million, the government said.

Now my math is most definitely not Ivy league status but ending up with 15 million net worth after you pay 8million in fines?

As the title states, who here will do 5 years in prison in exchange for a 15 million nest egg when they come out. It seems to be a pretty damn sweet deal. Maybe we should toughen it up a little bit and ask who will do it standing on their head, maybe even with a room mate named Bubba?

Someone please inform Maria Bartiromo of cases like this douche bag Skowron's the next time she poses the question on how to restore trust in our capital markets.

Read of the Day

2011-11-18T09:55:00.004-05:00

#CharlesHughSmith of the fantastic blog Of Two Minds has put out an excellent piece this morning entitled Preserving the Status Quo with Artifice and Lies Leads to Systemic Collapse. I have lifted and re-printed it in its entirety below. Why is it that what Charles is writing about is so hard for the cronycapitalist criminals in charge to understand? Well, maybe its because they are cronycapitalist criminals who are so nefarious they do not even pretend to hide their intent anymore on their looting and pillaging of as much as they can plain and simple.

Please visit Charles blog as his insight is valuable even considering he has never been on CNBC !! LOL

For those unaware Charles book Survival + Structuring Prosperity for Yourself and the Nation is a great that I highly recommend. Oh yeah, thx for the insight Charles, keep it up! So without further adieu here is Charles piece. Enjoy!

Preserving the Status Quo with Artifice and Lies Leads to Systemic Collapse (November 18, 2011)

Suppressing dissent, transparency and fact inevitably leads to systemic collapse-- exactly what we're seeing in the European financial system.

Fortunately for us, when our immune system identifies a cancer cell, the cancer cell can't demand to be saved by threatening to kill the entire system. You see the irony here, of course; the cancer cell will destroy the entire organism/system if it is spared, so its threat to bring down the entire system if it is eradicated is pure self-serving artifice.

This is a precise analogy for the "too big to fail" banks in the U.S. and the Eurozone: once again we are hearing the heavy-breathing threats that a systemic bank failure would destroy civilization. The truth is that preserving the cancerous banking system will inevitably bring down the entire system, so the only way to preserve the global economy is to eliminate the financial cancer now, before it triggers systemic collapse.

The best way to understand this is to consider the economy as a system. All sustainable, stable systems require a free flow of information: multiple pathways of communication, experimentation/mutation and transparent feedback. This essential activity generates the low-intensity instability of volatility and fluctuation.

A system which suppresses information and the low-level instability of dissent and negative feedback thus suppresses the information the system needs to remain stable. Suppressing dissent, facts, transparency and feedback inevitably destabilizes the system. It is ironic, isn't it, that the suppression of dissent, facts and transparency creates the surface illusion of stability, but it is only a facade. Beneath the surface, the lack of information and low-level fluctuation/volatility builds up system instability which is suddenly released as non-linear, chaotic volatility and collapse.

What Europe, the U.S., China and Japan have now are leaderships that substitute lies for fact, obfuscation for transparency, artifice for feedback and propaganda for communication. the ssential negative feedback of dissent has been choked off, leaving only self-reinforcing positive feedback loops in the system, feedback that inevitably leads to runaway collapse.

In a financial example, when the negative feedback of short positions is banned, then there are no buyers left when the selling begins. The selling cascades, triggering more selling, which then feeds more selling until the bid disappears entirely.

In Europe, the political and financial Elite is preserving the Status Quo with artifice and lies. This can only lead to non-linear systemic collapse. Beneath the surface, they are manipulating, intervening, propping and pumping, but preserving a terminally unstable system with more lies and intervention is impossible.

The only question left is how much longer the system can wobble unsteadily before it finally collapses in a heap of depreciating euros.

Judge Napolitano - A Dose of Sanity in An Insane World

2011-11-18T09:35:00.006-05:00

#JudgeNapolitano. Like the title says, a dose of sanity in an insane world.

Ann Barnhardt- Short and to the Point

2011-11-17T18:24:00.006-05:00

I realize many out there are very busy. I also realize many out there like pictures and television more than words. I also know people know more about J Lo, the Situation and Kim Kardashian than they do about the Fed, mark to market, and Jon Corzine. That being said Ann Barnhardt's letter I posted in my last post is long. So I thought I would share the most salient quote from it, just in case you wanted to skip it cause I know the Jets and Broncos are on tonight. Ann states;

"And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism."

Hang on a little more. Ann finishes with this:

Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.

The only thing Ann omittted is that the Bush administration was just as criminal as this one.

Yet More Evidence

2011-11-17T18:10:00.008-05:00

I rail about what our capital markets have become quite often. I think those in the know, know that the ship is sinking and it has become a free for all to loot and pillage as much as you can before we go down.

Many think I am a hater, many think I am bitter, many think I am simply nuts for my conclusions that the whole temple is perverted and completely diseased. Many think I am a lunatic for desiring a guillotine outside the NYSE (among other places)

Well today I present to you (hat tip to the cats at ZeroHedge for this) a very sad letter from Ann Barnhardt of Barnhardt Capital Management (BCM). Its content should be self explanatory. I wish Ann all the best inthe future and thank her for her candor.

BCM Has Ceased Operations

Posted by Ann Barnhardt - November 17, AD 2011 10:27 AM MST

Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, “clawback” is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity’s collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company’s bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to “clawback” those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client’s account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.

And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

Remember, derivatives contracts are NOT NECESSARY in the commodities markets. The cash commodity itself is the underlying reality and is not dependent on the futures or options markets. Many people seem to have gotten that backwards over the past decades. From Abel the animal husbandman up until the year 1964, there were no cattle futures contracts at all, and no options contracts until 1984, and yet the cash cattle markets got along just fine.

To my clients, who literally TO THE MAN agreed with my assessment of the situation, and were relieved to be exiting the markets, and many whom I now suspect stayed in the markets as long as they did only out of personal loyalty to me, I can only say thank you for the honor and pleasure of serving you over these last years, with some of my clients having been with me for over twelve years. I will continue to blog at Barnhardt.biz, which will be subtly re-skinned soon, and will continue my cattle marketing consultation business. I will still be here in the office, answering my phones, with the same phone numbers. Alas, my retirement came a few years earlier than I had anticipated, but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.

As for me, I can only echo the words of David:

“This is the Lord’s doing; and it is wonderful in our eyes.”

With Best Regards-
Ann Barnhardt

Finally Someone Speaking the Truth !

2011-11-17T18:01:00.007-05:00

#NigelFarage video below is must viewing. Nigel is quite the individual. To call him outspoken, well, lets just quote famous college basketball analyst Bill Raftery and say "Onion, double order !!"
Well done Nigel! Well done!

Good Morning to The Many

2011-11-14T09:43:00.005-05:00

Good Morning.

Many of the 99% prefer TV and music to books and words. Given this, maybe a few of the 99% will will listen to this fantastic piece entitled We Are The Many by a cat named Makana. Maybe a few will even pay attention to the powerful lyrics therein.

Wonderful. Simply wonderful. Thank you from this idiot blogger.

Oh yeah, please share with your friends, (thx GP for sharing it with me).

My Two Cents

2011-11-10T10:01:00.017-05:00

Who didn't like a Joe Paterno or in the very least have the utmost respect for him. An entire career at one institution? Come on. With thug coaches out there like a Jim Tressel, a Gary Barnett, a John Calipari, a Bob Huggins, or a Bruce Pearl? How could one not admire Joe Paterno? I remember the story of when approximately 8 of his players got in trouble and he made the whole squad clean up Beaver Stadium after a game there. Some principle, or so I thought.

Those days are over now. You all know the story surrounding this and the fact that Joe Paterno knew and punting to someone else is shocking. This is not only a man who is a molder of young men but is the grandfather to approximately 16 children. Wonder if he would let Sandusky baby sit them?

We now have the President of the school and most probably chief Joe Paterno ass kisser now fired in disgrace for the cover up. We learn that Joe Paterno is now toast, having been fired. So what does the student body of Penn State do in response?

They riot. Not because they are upset at the cover up, not because they're upset at the buggering of 10yr old boys plural, no, these simpletons riot because the board of the school fired their beloved football coach. I have seen some crazy shit in my day but this is off the charts.

The phrase shit for brains really comes to mind. This is yet another example of what happens when a society flakes out and there are no consequences for anyones actions. Lots of laws, lots of rules but no enforcement. Lots of slaps on the wrists, lots of you were a bad boy here now pay a fine, lots of sit out a few games so everyone thinks we're sorry for exploiting a few more kids.

People cringe and think I am a lunatic when I drop the phrase "we need a few guillotines" around. I have said it before and will say it again, none of this matters until it happens to your loved one. Only then does the idea of a few guillotines not seem so bizarre and draconian.

I would start by placing a large visible one outside the NYSE.

You think the investment bankers at JP Morgan would have done the financial rape of Jefferson County Alabama had that guillotine been present? For those interested Jefferson county commissioners voted 4-1 to declare bankruptcy late yesterday.

I happened to read today a federal judge questioned the SEC about a settlement they reached with financial terrorist organization Citigroup. In what must be the umpteenth hundred time I have read a version of this story before, the judge questioned why the SEC only wanted $160 million restitution in illicit profits when investors lost approximately $700 million in the deal.

Check out what Citi's lawyer Brad Karp had to say when asked by the judge if the company admitted to the allegations brought by the SEC .... he replied;

"the company doesn't. If its any consolation, we don't deny them either"

What people miss is that when there is the threat of a guillotine which is a loud megaphone announcing consequences, people -or at least most sane rational ones - may tend to weight their decisions more carefully.

Just my two cents today.

Groupon IPO

2011-11-03T11:34:00.004-04:00

The #Groupon IPO (ticker $GRPN) is now on deck. For those interested in a detailed breakdown of the fundamentals please see the underwriting group instructional video below.

Greece, MF Global and Democracy

2011-11-02T10:38:00.014-04:00

MF Global is the big story on the wires the past few days. That along with Greece and its referendum on the Euro bailout.

Can you imagine that now! A voter referendum. How positively gauche!
How dare Papandreou attempt to inject democracy into a feudal crony-capitalism ponzi system. May advice to Papa would be to double up his security detail as the parasites that inhabit our Fed, the EU, ECB and various other crony elitist entities and their banking masters are petrified of a referendum, of democracy, of information.

Why??

Well, in one word.... Iceland.

The Icelanders found out what was going on before the parasites could shove their way down their collective throats.

Hopefully the citizenry of Greece will offer the same 'middle finger' gesture to the global banking thugs that the Icelanders did. In other significant news Greek Prime Minister Papandreou overnight sacked the entire military brass of the country. Did he smell a coup coming? Was he worried about whose pocket the military brass was in? I know not.

If you follow me on twitter you know I have been tweeting quite a bit on the subject of MF Global and its brilliant CEO (and ex Goldman Sachs CEO) Jon Corzine.

Forget the fact that client account monies which by law are supposed to be segregated from the firms is now missing. Forget that MF just sold a couple hundred mill in bonds to pension funds valets and never made a coupon payment. Just remember Corzine is yet another in a long of of alum from the firm purported to be doing God's work.

Oh yeah, did I mention MF Global was levered up 40x. Yes more debt and more leverage fix everything. Jon Corzine bet the ranch on Spanish, Italian and Greek bonds all in the hope that his expert network of contacts, cats like Draghi, Carney, et al. who have assured him bailouts infinitum are coming would materialze.

And when it doesn't? Heads I win tails you lose.

Jon Corzine besides being a thug and a thief is a sham. He is yet another in a long line of faux fund managers. You know from the David 'investing is easy' Tepper school of fund management. Where you bet the ranch on crony-capitalism bailouts and intervention in the hope of reaping huge windfalls which let you prosper. And if you bet goes awry. Well, then of course the clients, the taxpayers, anyone but your smug, arrogant inflated ego ass self takes the hit.

Better to let your 5 yr old manage the money. At least you know there are no nefarious aspects to the deal and it is simple luck.

Just remember this the next time some mainstream media boob fawns over a Wall St. guru while on bent knee asking what its like to be a billionaire. Remember this the next time some beauty pageant contestant (male or female) turned bingo caller describes the Occupy Wall St. movement as socialist, marxist, anarchist. They have no clue what any of those words mean until the teleprompter tells them so.

Do As We Say, Not As We Do

2011-10-28T15:31:00.004-04:00

Cheating Epidemic Both in Reality and Fantasy

2011-10-28T10:59:00.010-04:00

It appears the leader in business news CNBC has been having a stock picking stock contest called the Million Dollar Portfolio Challenge. While I was away CNBC moved to suspend said stock picking contest. It appears that some contestants found a glitch in the system and were able to exploit it to their benefit. Now some have taken to calling this cheating.

Cheating? Are you kidding me. Is there is no such word on Wall St.? I thought Wall St. was survival of the fittest? You know expert networks, front running, among a litany of other things too numerous to mention.

Actually, who is really shocked by this? Cheating is a epidemic in this country but sadly it appears cheating is an indispensable and coveted skill when operating on Wall St. whether it be in reality or fanstasy.

In my humble opinion, when the rule of law stops being enforced we get the proverbial free for all we have now. With the rampant manipulation and cheating in the real world markets should we really expect any different in the fantasy world such as CNBC's contest?

And to think poor Maria Bartiromo continually asks when trust will return to the markets.

To all those parents out there shelling out 100's of thousand of dollars for that Ivy league MBA so their kids can work on Wall St. I simply chuckle.

Breaking news just in that Goldman Sachs, JP Morgan and the rest of the Wall St. welfare cases have filed a motion under the freedom of information act to get the names of all the CNBC contest cheater so they can offer them 6 figure employment contracts with their prop desks.

Back Home

2011-10-28T09:09:00.004-04:00

G'day mates! I am back from vacation having just returned from wonderful few weeks in lovely Australia, the land down under.

Besides some jet lag, no worries at all and back to posting soon.

Cheers.