Archive for December, 2011
It’s not even New Year’s Eve yet, and I’m already thinking about hangovers.
(Not mine, of course. I don’t drink any more these days. Then again, I don’t drink any less, either.)
Today I’m thinking about how the world is going to look and feel in the coming year, how the markets might react to likely events, and what might be shining over the investing horizon in 2012.
No matter how optimistic my nature is, and how hopeful I am that global issues will be addressed and eventually fixed, the truth is that it’s always darkest before the dawn.
Another way of saying that is, if you’re going to drink to excess, you’re going to suffer with a hangover. And the more you drink – and especially if you mix your drinks – the more likely it is you’re going to suffer the ill effects of too much indulgence. (At least that’s what I’ve heard.)
Is that some kind of metaphor, you ask? Of course it is – have you been drinking?
This “Hangover” Is Here to Stay
Global markets celebrated artificially low interest rates a few years ago by going on an absolute bender.
Everybody seemed to leverage their fun and greed by buying a lot of stuff they really couldn’t afford. I’m talking about consumers, banks, and countries.
The resulting credit crisis was, if you’ll pardon the analogy, like getting sick after over-imbibing at some wild party.
Even though consumers, financial institutions, and countries would have had to come to grips with their past mistakes sooner, had they all been left to suffer in their sickness, they didn’t have to hit rock bottom.
Instead of kicking the habit of low rates and the leverage and excess that accompanies that spiked cocktail, countries and central banks fed us all “the hair of the dog,” meaning they got us drunk again on easy money, so we wouldn’t suffer from the acute sickness we were starting to retch over.
Sure, we suffered through the Great Recession, which was like a really bad hangover.
But the truth is, we never really got healthy. We still haven’t weaned ourselves off artificially low rates.
We’re still drunk, and we’re so used to it now that we don’t remember what it feels like to have a clear head.
That Brings Me to 2012…
Happy New Year! (Enjoy it, because whether you drink or not, we’re all going to have to endure the hangover that still lingers from 2008.)
Like I said, I’m optimistic that many of our domestic and many global issues we are all dealing with – because all the markets are still overly interconnected, and correlation is staggeringly high – might be effectively addressed sometime in 2012.
But, really, we’re going to have to continue to deal with the hangover that won’t go away. There’s still too much stimulus out there that has to eventually be mopped up.
The likelihood of that happening if Europe implodes will be exactly zero.
In fact, I’m afraid that we’re going to have another stimulus party to mask the dull pain global markets are suffering.
That will be fun for a while… maybe a few minutes… but it will turn into a worse sickness than what we experienced through the Great Recession.
There are lots of constituent elements to the hangover we’re dealing with. In the mix are things like:
- the continuing drop in home values (Zillow just reported that values in 2011 dropped by $700 billion, while in 2010 the value of homes sank $1.1 trillion);
- the continuing legal and regulatory woes of continually sick banks;
- our continually expanding U.S. debt and deficit;
- continued threats of insolvent sovereign nations actually declaring themselves bankrupt and repudiating their debts;
- continuing political battles here in the U.S. and across the globe;
- continuing instability in global hot spots like Iran, North Korea, Sudan, Syria, Egypt, and Iraq;
- continuing fears of slowing growth in China, Japan, Australia, Brazil, and other once “hot” emerging markets.
Now, that’s just the short list…
But I think you can see that we’re up against a lot of very serious issues that have been festering for a very long time. We are near the breaking point on some, and others will continue to bubble up.
Domestically, We’re in for One Heck of a Crazy Year
The political battlefield is only going to get bloodier as the year progresses, and it’s already sickeningly disgusting.
One thing that might help is if we, the people, demand that Congress changes its ways – by law. I mean they need to be leveled and start to live like the rest of us.
We need to take the whole Congress out to the woodshed.
That’s why our sister publication Money Morning has started a movement to address the ills we all see… but only gripe about.
I, of course, am 100% behind the Money Morning efforts, and I really need you to help me push our efforts. Just click this link and do your part. It will take you all of 20 seconds. You care at least 20 seconds worth, don’t you?
It’s about that hangover, and how we need to clear our minds and the road ahead.
I’ll do my part here, too.
In future installments of I&I, I’m going to offer you not just more insights about the markets, but I’m going to tell you what I’m actually trading. I’ll pepper this column with stock picks and positions for you to consider making yourself, and even more importantly, to help you profit in the potential downdraft that’s coming in 2012.
But right now, you’re going to have to indulge me for another week.
Because New Year’s Day falls on a Sunday – this Sunday, in case you’re too busy to notice – I’m not going to ask the folks who run this blog for me to get up early that morning, after some of them might have indulged on Saturday night, and trudge in to the office to send you out the Sunday edition.
So please accept my apologies for not delivering your Sunday dose of my ramblings.
Okay, okay, I admit it. I, too, might just be out on Saturday night celebrating. Just a little.
But I’ll promise you this. At midnight on Saturday, I will raise my glass of malted milk and toast your good health. I will thank you for so graciously letting me into your thoughts and trying to make you laugh – and sometimes wince – as we look at the world we live in and try to make sense and money out of all the marvelous mayhem that surrounds us.
Happy New Year… and if you do end up with a hangover, try Alka-Seltzer. I’ve heard it works wonders. Not that I would know anything about that…
Tags: banks, congress, credit crisis, debt, Europe, interest rates, leverage, market watch, politics, the Great Recession
Out of far left field, I see something coming that I never expected.
It’s more like the coming together of pieces of a puzzle that have eluded us for too long.
By the way, Occupy Wall Street, if you’re listening, and I hope you are, and you’re still floundering (which I know you are) without a cause that anybody can really wrap their heads around, drop your drums, chants, and wanderings, and make the coming together of this puzzle what you’re protesting.
And make what could result what you are demanding.
Because, really, this could be the mother lode.
The U.S. Securities and Exchange Commission is accusing six former executives of Fannie Mae and Freddie Mac of playing down the risk to investors of their firms’ aggressive fast-forward into subprime mortgages… which caused them to implode spectacularly.
Two separate civil suits, filed last Friday, allege that the executives “knowingly misled investors” who owned shares in the companies and were thus deprived of critical information against which meaningful investment decisions are generally made.
The two wards, currently under U.S. conservatorship (life support attended by a wet-nurse), were themselves spared being sued, on account of their signing civil non-prosecution agreements and promising to cooperate and not dispute allegations (and also not have to admit nor deny wrongdoing). Yet the SEC is seeking financial penalties, disgorgement, and an order barring guilty parties from serving as officers or directors of any public companies in the future against the implicated executives.
The SEC faces an uphill battle based on one word – “subprime.”
The problem is, subprime has never been legally defined.
You know what it means, I know what it means, everybody knows what it means, without knowing its exact definition. But if there’s no definition of subprime, defense lawyers will counter that it’s not possible to sue based on a standard that has never been defined.
How about we compare mortgages to cars and subprime to clunkers. If you’re on my used car lot and I offer you two cars at the same price and don’t tell you one is a clunker, is that fair? You wouldn’t need me to define “clunker.” If I said one was a clunker, you would simply choose the other car; after all, it’s the same price.
There is a difference, there’s a big difference.
Over on the Fannie and Freddie lots between 2006 and 2007, they were loading up on clunkers and not telling anyone what they were stocking. In fact, they were saying things like, “basically (we) have no subprime exposure” in the single-family realm.
One of the reasons they were loading up on subprime was because Wall Street banks were eating their lunch by buying up subprime loans, packaging them, and selling them to investors hand over fist, and Fannie and Freddie wanted in on that very lucrative business. It’s not that they hadn’t dabbled in subprime before; they had. But as they saw stresses in the marketplace on the better mortgages in their portfolios, they still loaded up on far weaker credits; also known in the business as SUBPRIME.
So what’s next?
There are going to be a lot of emails and other testimony coming out about who knew what when, and who lied to who to make how much.
It’s going to be fun to watch this thing unfold.
But the whole point of this piece of the puzzle coming to light is that, to make their bonuses bigger and their options worth more, these executives leveraged their essentially “private” companies knowing that their losses would be “socialized” (paid for by taxpayers) if their bets fell apart.
Their lies are no different than the lies told to investors by the big banks during the credit crisis (and most of the time, for that matter).
Yes, if the SEC wins their cases, there’s hope that the lying executives of our biggest banks (and, if there is a God, the liars at the Federal Reserve, too) will be brought to justice for misleading not only their investors, and the American public that bailed them out, but also Congress (not that they would ever lie), who crafted legislation to save us from another financial catastrophe without knowing how the banks and the Fed lied to us all.
Thanks to Bloomberg LP and Fox News Networks LLC – who sued the Fed to get them to cough up data under the Freedom of Information Act – we know just how much they all lied.
We now know the bankers were telling lies to our faces while being propped up by the backdoor boys at the Fed. Heck, most Fed regional bank presidents didn’t know, the Treasury Secretary didn’t know. Nobody but the bankers and the Fed knew that they were lying to us.
Again, courtesy of Bloomberg, here’s what they were saying, when they were saying it, and how much money they got from the Fed to keep their doors open on the exact dates that their borrowings peaked:
- On September 21, 2008, Morgan Stanley CEO John Mack said, “Morgan Stanley is in the strongest possible position.” By September 29, 2008, they had borrowed $107 billion from the Fed and took another $10 billion in TARP money.
- On January 16, 2009, Citicorp CEO Vikram Pandit said, “We have an irreplaceable franchise.” By January 20, 2009, they had borrowed $99.5 billion from the Fed and took $45 billion in TARP money.
- On January 22, 2009, Bank of America CEO Kenneth D. Lewis said, “The diversity and strength of our company is allowing us to continue to invest in our business to drive future profit growth.” By February 26, 2009, they had borrowed $91.4 billion from the Fed and took $45 billion in TARP money.
- On December 16, 2008, Goldman Sachs CEO Lloyd Blankfein said, “Our deep and global client franchise, experienced and talented people and strong balance sheet position our firm well.” By December 31, 2008, they had borrowed $69 billion from the Fed and took $10 billion in TARP money.
- On February 23, 2009, JPMorgan Chase CEO Jamie Dimon said, “We believe we have a fortress balance sheet.” By February 26, 2009, they had borrowed $48 billion from the Fed and took $25 billion in TARP money.
- On March 6, 2009, Wells Fargo CEO John Stumpf said, “We couldn’t feel better about the future.” Meanwhile, as of February 26, 2009, they had borrowed $45 billion from the Fed and took $25 billion in TARP money.
They are all liars. They should all be prosecuted for misleading their investors, the public, and Congress.
It was these very banks that were feeding crap to Fannie and Freddie and at the same time competing with them to grow the whole pie for all their bonuses and stock options.
It was a giant scheme – don’t you get it?
And because they are such good liars they, the banks, and the Fed will tell us and Congress that we can’t handle the truth and they lied to us to protect us from the reality of how bad things really were.
Really? We need to be protected from the truth so we can continually be lied to so they can all make more money?
Sure, that’s why total assets held by the country’s above-named biggest banks have risen 39% since 2006. That’s why average banker pay in 2010 was the same as it was in 2007. That’s why banks spent 33% more money lobbying Congress from 2006 through 2010. That’s why Dodd-Frank isn’t completed and never will be. That’s why America has become a sinkhole.
And speaking of sinkholes…
No, I’m not going to point to that former MF Global leader Jon Corzine, who used to brag that he co-authored Sarbanes-Oxley when he was a U.S. Senator (such an august body!), which hopefully he will be hung by, along with the entire gallery of rogues above who deserve the gallows… no, not him.
In case you Occupy Wall Streeters missed the other pieces of the puzzle, there was the list of lies the bankers foisted on us while being aided and abetted by the lying Fed and how they should all come under the axe of Sarbanes-Oxley, after all, it is still the law of the land. Those are the pieces of the puzzle that need to come together.
But, alas, I digress once again; back to Freddie and Fannie.
No doubt you knew that Newt Gingrich, former Speaker of the U.S. House of Representatives from 1995 to 1999, a House member since 1979, author of the Contract With America, and the distinguished first House member in history (he will like this, he is an historian, did you know?) to be disciplined (and fined $300,000) for ethics violations. (He actually faced 84 charges during his, did I say “distinguished,” term, and quit before he could be kicked out of that, did I already say “august,” body).
When he “quit” he said, “I’m willing to lead, but I’m not willing to preside over cannibals.” Good for him! Because once freed, the august historian was called upon to eat at the august table of Freddie Mac.
Of course, he didn’t approach them. He says, “I was approached to offer strategic advice.” Nice work for $1.6 million if you can get it, being an “historian” I mean, and offering The Freddie …”advice on precisely what they didn’t do.”
He actually said that.
Oh, what they didn’t do, now I get it.
The Newton bomb must have been talking about Freddie not raising the fees it charged back in 1995.
You probably don’t remember, but back then some actually, really august members of the House wanted Freddie and Fannie to raise their fees to make them more competitive with private mortgage outfits. There was serious concern back then that the Government Sponsored Enterprises were too enterprising and, with their de facto government backing, could raise money cheaper than private outfits and outcompete them in their rather large business space.
But Newt-to-the-rescue – the same Newt who said, “I’ve never done a favor for Fannie or Freddie” saw to it that the proposed fees would never see the light of day. Ah, all in a day’s work over at our august Capitol.
Is he a liar? I would never accuse anyone of being a liar, you know me… so let me put it nicely… He is a liar.
Where was I?
Oh, have a Happy Holiday… and if you don’t have any presents to give out, you can always pass this along as a pillow to any of the cold kids camped out with their Occupy Wall Street posters as comforters.
Seriously, Happy Holidays!
And one more thing. There won’t be an Insights & Indictments in your mailbox this Sunday morning… I just don’t have the heart to do that on Christmas.
Tags: Bank of America, banks, Bloomberg, Citicorp, congress, Dodd-Frank, Fannie Mae, Freddie Mac, Goldman Sachs, Jamie Dimon, John Mack, John Stumpf, Jon Corzine, JPMorgan Chase, Kenneth D. Lewis, Lloyd Blankfein, MF Global, Morgan Stanley, Newt Gingrich, Occupy Wall Street, Sarbanes-Oxley, SEC, subprime, subprime mortgages, the Fed, Treasury Secretary, Vikram Pandit, Wells Fargo
Far from having my holiday spirits uplifted, I’m increasingly glum (about the markets, but not about life, liberty, and the pursuit of happiness) on account of the lack of any good cheer coming out of…well, anywhere.
Take Europe, for example. You know, Europe, as in the European Union. As in that region of the world that has always gotten along, happily sharing each other’s cultures, cuisines, and shrapnel wounds from their exploding sovereign debts, courtesy of a common currency that affords cheap financing for budget bludgeoning.
There’s no good cheer over there.
Didn’t anybody hear Christine Lagarde (formerly one Europe’s own when she was running finances for France, but now runs around with whips and chains as the high-heeled dominatrix of the IMF)? Last week she said that if we don’t all work together our situation will be similar to the 1930s.
She wasn’t just talking to the Europeans. She was warning world leaders and central bankers.
Good thing Fed Chairman Ben Bernanke got the message. He told lawmakers last week that they have “no further plans to aid European banks.”
So much for holiday spirit.
But, I think the Beard is just too modest; he wants to be a secret Santa.
In fact, there’s really a lot of gift-giving going on over in Europe. If you look closely you’ll see that stockings and sacks are being filled, and the Fed was the first to contribute.
But (frighteningly, if not ominously), if you look closer you’ll see those stockings and sacks aren’t being filled with presents, they’re being filled with sand. They’re sandbags.
Sandbags? Yes, sandbags, as in the last ditch effort to save towns from catastrophic flooding when the big dam breaks.
Here’s my supposition; it’s as good as anybody else’s out there because no-one really knows what’s happening.
The dam is going to break. Greece will be kicked out of the common currency, or maybe it will quit. Portugal will be next on the chopping block.
The dominoes are lined up. If they start falling from mortal wounds inflicted on them by bond vigilantes, there will be a line drawn in the sand (yeah, I know, there’s a line in the sand now, it’s called Greece), around Italy. That’s where coalition forces will eventually convene to save the rest of the Union, and the world.
It’s about those sandbags being filled. The Fed has offered unlimited-term dollar swap deals at Black Friday prices. The ECB is stuffing their bags with three-year term loans to banks and accepting crap collateral.
Did you know that they’re now accepting bank loans (that’s right, loans that European banks have made to all kinds of borrowers, including each other) as eligible collateral? Nah, there’s no panic over there, everything is fine.
There are lots of other sandbags being filled because everyone is afraid that the dam could continue to spring leaks. If all these sandbags are filled and at the ready, well, there’s a sense that the town will be saved.
Only… what if they were being filled because the dam was going to be allowed to fail?
There’s been ample time to do lots of things to prevent the implosion of the European Union. So, why are we still here? Why are European leaders snubbing each other? Why are there so many mixed messages? Why hasn’t the ECB been given the power and the will to reinforce the dam?
Maybe because Europe is Europe, and all that getting along is just long and wrong.
I am not long Europe and definitely not long the euro. I’ve been short the euro for over a year. Subscribers to my trading services are long (“long” means we bought) the ProShares Ultra Short Euro (NYSEArca:EUO), and we’re sticking with that trade. The euro broke $1.30 last week; it could be headed for its own line in the sand, which is $1.20.
Personally, I’ll be adding to this position if it goes against me. I’d be adding all the way back to $1.40, if the euro ever gets there again. I’d stop myself out if there’s some crazy good news out of Europe and the euro goes to $1.45.
As for Good Cheer Elsewhere…
Riots in Cairo over continued military power on the heels of the Arab Spring, courtesy of Twitter-like communication to band together and take to the streets. Not good news.
Protests in Moscow (and a big one planned for Christmas Eve – again, likely driven by social media) over Mr. Putin’s military-backed hold on power, and patently fraudulent elections. Not good news.
Unwelcome and sometimes violent get-togethers in China over state policies in the hinterlands, and close to some big cities. Not good news.
At least the Chinese authorities are smart. They just clamped-down on pesky twitteresque twits communicating their grievances between a few hundred million of their kind, by forcing any bloggers to register their true identities.
Why didn’t anybody else think of that? The penalty for not doing so, well, they didn’t say, but there’s no reason it shouldn’t be the death penalty. After all China is a communist democracy, you know.
Oh, and as far as them controlling the media and the mediums of communication, maybe they should have kept it a little quieter that, in October, 34 out of 70 mainland cities witnessed new-home sales decline, while only three cities saw price declines last January. About that “harmful information” getting out… Not good news.
Is there hope? Is Santa coming?
Chanukah starts on Tuesday; let’s hope that hopeful festival starts a beautiful turnaround that takes us through Christmas, into the New Year, and onward.
But, then again, I never got that pony I wanted when I was five, either.
The SEC Takes on Fannie and Freddie
Speaking of ponies, and four-legged animals that resemble ponies (I’m thinking about the real asses involved in this saga), how about the S.E.C. (they’re asses too, but in this instance they’re the ponies) kicking the butts of some former executives at Fannie Mae and Freddie Mac.
If they pull this off, then there really is a Santa Claus, and I will yell from the chimney tops, I believe, I believe!
Because this is so amazingly huge I’m going to dedicate Thursday’s indictments angle to this whole story, and – you’ll be happy to know – it will include a surprise guest appearance of one of the biggest asses in America, who is not only a big part of the Fannie and Freddie saga, but just happens to be someone smiling at you from your TV screen all the time now.
Can you figure out who I’m talking about? If you like this guy, and some of you may, surprise, I’m going to upset your little apple cart. But, don’t hate me for that.
Sorry, I always digress too much. Back to the Freddie and Fannie primer.
The SEC has accused six former executives from the two government-sponsored eyesores of “knowingly misleading investors” by not disclosing the risks the companies were taking on by loading up on subprime mortgages just as the market was weakening.
The beauty of these charges is that if the SEC prevails (holy cow, if they do, America will be back on track to becoming America again), not only will Americans end up prevailing over corporate thievery, but America will once again prevail as the world’s fairest country to do business in!
And that will be some really GOOD NEWS!
Tags: ben bernanke, Christine Lagarde, ECB, euro, Europe, Fannie Mae, Freddie Mac, Greece, Italy, Portugal, SEC, the Fed
Some of my very well educated friends have some very simple explanations to complex issues.
For example, I might ask, “So, what do you make of all that?”
One genius (literally) buddy of mine will ponder the imponderable, look at me with a knowing smile (which I presume will yield some incredible insight) and say, after a pause, “Everything is everything.”
Do you agree with Shah?
On the other hand, I have another good friend who barely got out of high school, and he has a similar saying. I’ll ask him how his life is going, and he’ll answer, “It is what it is.”
I’d keep those sayings in mind, if I were you.
Here we are today (for me it’s 6:30 am, and I’m in Sarasota, Florida) looking at the futures pointing to a positive opening on the heels of another triple-digit move down yesterday.
Of course, it’s still early, and we’ve got some important economic data coming out a little later. Stuff like the November Producer Price Index, industrial production, and capacity utilization.
If U.S. economic data points today are positive, and they may be, maybe we’ll get a triple-digit up day.
Triple-digit, you ask? Sure, I like looking at the Dow Jones Industrial Average because it’s so dramatic, especially when you see it up 400 points or down 1,000 points. That’s just plain exciting. After all, I’m a fan of “big numbers” (like most people).
But if you watch the S&P 500 or some other benchmark, triple-digit works for you too. Just think in percentage terms. It used to be that the markets might move 0.15%, or on a crazy day maybe 0.75%. These days we see triple-digit percentage moves, as in the S&P yesterday dropping 1.13%.
So, you see… we’re getting triple-digits moves for everybody.
What’s the big deal about a few triple-digit down days taking us to fear’s front door, followed by a bunch of moon shots higher to the top of recent highs, followed by a couple of weeks of “Oh my God” the world is imploding triple-digit down days in multiple succession, followed by some better than expected economic data (which, of course, looks better after everyone ratchets down their expectations) which takes us up 1,000 points (or, 9.09%, if you prefer), which happens to be almost back to the recent highs, followed by a bunch of triple-digit drops… anyway, I think you get the picture.
So, you want some market “insight” today?
Here it is: It is what it is.
Here’s another saying I like: “Nothing matters, and what if it did?”
Confused? Don’t be. It’s just the markets doing their thing.
You see, we’re in a trading range.
We can’t go too low, because “there’s a lot of value” in equities when they get cheap enough, “on an historical price earnings basis,” or relative to bond yields. That’s what the analysts tell you.
On the up side, we can’t go too high, because “European sovereign debt issues are a matter of insolvency not illiquidity” and “China is slowing down,” and so is the rest of the world.
And about that “stimulus”… are we going to get more, or is it going to be mopped up?
Then there’s that other little dynamic called “politics.” You know, politics, that game run by politicians. You know, politicians, the synonym for ignoramuses.
That’s why we are where we are… which is nowhere.
Personally, I’m trading the ranges, but not applying a lot of capital. There’s just too much risk either way. How am I doing that? I’m adding to shorts on the way up, taking profits on the way down, and buying big-cap, good-dividend-yielding stocks on the way down, hoping to catch the bounce back up. That’s all I can do. And I’m doing it lightly.
Hint, hint… be careful out there. After all, “everything is everything.”
The Stalwart SEC Takes on the Venerable Citigroup
And since everything is everything, why wouldn’t the stalwart Securities and Exchange Commission want to challenge the ruling of a lowly U.S. District Court judge who challenged their modus operandi?
I’m talking about the SEC enforcement staff likely going to recommend to the five-person commission that runs the agency that the SEC appeal Judge Jed Rakoff’s rejection of an SEC settlement with Citigroup.
The venerable Citigroup (I’m not sure if “venerable” and “Citi” belong in the same sentence, but whatever) was taken to task by the really venerable (there I go again) SEC (and did I mention “stalwart”?) over the stupid sale by Citi of one little billion-dollar mortgage deal simply named Class V Funding III.
As it turns out, probably because some stupid, ignorant investors lost almost $700 million on the deal and went crying to their mommies, the SEC looked into the matter.
Anyway, by accident, probably, Citi was betting that the hot deal they were selling to investors would actually implode – What? As if any banker would ever do something like that? – and they’d have to sell them something else to make up for their losses later.
Well, the SEC, being so stalwart, settled the affair with Citi by asking them nicely to pay a $285 million fine, and sign something that they pretty much rubberstamp all their settlement papers with, that says that of course Citi neither admits nor denies wrongdoing but that, well, you know, shoot happens.
Judge Dread having to sanctify the settlement called it “pocket change” and took issue with the old venerable “neither admit nor deny wrongdoing” flowery language. He’s a tough guy who has slapped the SEC before. Only this time it’s personal.
The SEC is afraid that other judges and, heaven forbid, stupid plaintiffs led by their brilliant lawyers might sooner or later take issue with being wronged and not having the criminals cry and admit it in public.
A heavy-duty, hang ’em high judge going against the venerable, stalwart (and what a great job they did protecting us from all that stuff in 2008) SEC is going to be good theater.
It’s about time someone looked at the SEC and called them out on their cozy relationships with the wards (or warts, as the case may be) under their charge.
Stay tuned… This is going to get messy, I hope.
Tags: benchmarks, Citigroup, Judge Jed Rakoff, liquidity, market watch, politics, SEC, sovereign debt, stimulus
Very soon we will see if the old market adage “Buy the rumor, sell the news” is true.
While rumors of Europe’s impending demise were momentarily shot down by an array of silver bullets, the actual news out of Brussels of a grand bargain wasn’t… exactly… honest.
Let’s call the half-measures agreed to by European leaders “Brussels sprouts,” because they’re more like “green shoots” than a cabbage patch panacea.
The leaders agreed to agree that they needed an agreement on how to more closely integrate their fiscal and monetary interests.
Yeah, that’s what they said. I say good luck with that.
Actually, they made some other moves, too.
They moved up the date for the European Stability Mechanism to get funded (yeah, right), promised to revisit the European Financial Stability Facility’s financing so they could have twin facility spigots. And – this one’s my personal favorite – they winked at having European central banks make bilateral loans (up to €200 billion) to the IMF so the IMF could back Europe’s central banks and the ECB.
You just can’t make this stuff up.
Seriously, there’s nothing like a crisis to consolidate your power – which is what the Northern Europeans are angling for.
But for the life of me, I can’t imagine a bunch of sovereign nations subjecting themselves to forced austerity, being taxed by technocrats (who, of course, will be non-partisan, non-xenophobic, nonplussed objectivists), and dictated to as occupied territories by the machinery that ground them down in the first place… and wants to keep them there.
What… You don’t get that?
Here’s a newsflash for you: The “new” rules about maintaining strict debt to GDP ratios and other my-way-or-the-highway fiscal demands are not new at all.
The same metrics for fiscal discipline that were lauded last week were already in place – it’s just that no-one followed them.
Everybody cheated… starting with the Germans themselves.
See, the whole idea of a “common currency” was a ploy by the Germans and their French followers to facilitate cheap financing across Europe so European politicians, especially the profligate PIIGS, could float ever-larger deficits to give ever-wanting constituents buying power to, guess what, buy exports from the Northern Alliance.
And it worked.
Now, with no place to go but debtor’s prison (whose chief warden is the IMF), the PIIGS and others who lapped up cheap euro financing schemes won’t be able to devalue themselves to make themselves more competitive.
So, while they are being told to tighten their belts and being taxed into no-growth (which will then demand “stimulus” measures), the Northern Alliance plans on enjoying a more competitive position in global markets by the pending devaluation of the euro. That will come about when the ECB eventually capitulates to likely quantitative easing schemes.
It’s one thing for the leaders of Europe to try and lead the Union out of its crisis, but it’s quite another for the people of Europe to capitulate to some foreign fiscal power. The Brits already said take a hike, and three of the remaining 26 nations that are supposed to be agreeing can’t agree to anything until their parliaments vote on whether they agree.
Ah, there’s the rub… Agree on what?
What is the plan, exactly? What taxing authority will be granted? What disciplinary measures will be imposed on treaty breakers? Who will run the detention camp and sit in the watchtower? Details, details, they’re not important.
My point is, is there really another point to what seems to be happening in Europe? Are we missing something? Are we being set-up for a surprise splitting-up of the E.U.?
We very well could be.
Look behind the curtain, and you’ll see all kinds of levers being pulled to flood Europe with liquidity. Why? First of all, because they need it. Second, to avoid another Lehman moment (which still may be coming) from turning into a global meltdown.
European banks have to be flushed up with liquidity, lest in a moment’s notice they are flushed down the toilet.
Enter the Fed and the ECB.
The Fed is providing unlimited dollar swaps to anybody who needs dollar liquidity, namely European banks. The week before last, about $3 billion was tapped. Last week, that number rose to $50 billion. It’s good to see things are getting better, right?
Then, this week, the ECB lowers its benchmark interest rate to 1%, offers an unlimited amount of term borrowing (three-year loans), and (my favorite) starts accepting all kinds of crappy collateral (not that sovereign bonds aren’t crappy enough) from banks who come a-calling to the money store.
Do you think any of these moves came to pass because S&P was passing out warnings about sovereign downgrades being teed-up? Hmmm? Maybe? Nah, probably not.
The Markets Did Not Love All This Stuff
Sure, the U.S. had a decent week, but Europe pretty much fell on the week, and Asia tanked.
We’ve yet to see U.S. markets break above their 200-day moving averages. Yet to see any of the innumerable correlated charts around the globe evidence a breakout anywhere.
Will it happen this week? Maybe for the U.S., but then again, maybe not.
The rumors are reconvening, and the old news is out. It just may be time to sell this U.S. rally on the news that the news out of Europe wasn’t all good news.
Personally, I’m still short, but I am feeling some heat (as several of you have so graciously written to point out).
I’m still looking at the Dow breaking convincingly above 12,200 and the S&P breaking above 1285 before I cover and consider a new round of selective shorting if we continue to rally while Europe and China are slowing down.
If we break out to the north I’m going to start buying select stocks for my newsletter subscribers. But we will tiptoe in and race out if there’s no follow-through on any breakouts on decent volume. There are market forces trying to push us higher, and they just might get their way for another couple of weeks, or months.
Europe isn’t fixed; it’s merely been liquefied.
Still, all its gas could cause it to explode. So we all better keep an eye open when we sleep.
And speaking of sleep…
Did you see Jon Corzine testify in front of the House Agriculture Committee? Is that guy sleepwalking or what?
This is Worse than Disgrace
He had no answer to the question about what happened to the missing $1.2 billion of bankrupt MF Global’s customer funds. When asked if he transferred customer funds to back his failing monster bet on European debt instruments, he acted like the whole thing was a dream and not his own personal nightmare.
How dare he answer that, if customer funds were used, he didn’t “intend” for that to happen?
As the CEO, with just a little background in the business, you know he knows what’s up.
He had to authorize it. As powerful as he is, no-one, no underling is ever going to just go ahead and use segregated customer funds to finance the CEO’s Big Bet on European debt. If it happened – and it looks like it did – he could NOT not have known.
In other words, he’s a liar.
Unless there’s something so screwy in this can of worms that the money is actually somewhere where it can be recovered, then this mess is going to turn into criminal charges, and Jon Corzine may end up worse off than just “disgraced.”
Good thing he’s on his own now, and not tainting his old shop, Goldman Sachs. For once, they’re not directly involved in this caper. Indirectly? Maybe…
Here’s a Riddle for You
See if you can find the common denominator in the following string of seemingly disconnected connections:
You knew that Jon Corzine was formerly co-CEO of Goldman Sachs, right? Did you know that Corzine got the top job at MF Global because his good buddy, billionaire J. Christopher Flowers, head of J.C. Flowers & Co., was a big investor in MF Global and wanted him on board? How do they know each other? Flowers, of course, worked at Goldman Sachs before hanging out his own shingle.
Then shortly after taking the helm at MF Global, Corzine, in an effort to amp up the company’s status, managed to have the firm named as one of only 20 “primary dealers” authorized to trade directly with the Federal Reserve Bank of New York’s trading desk. Who makes the decision about who becomes a primary dealer? There are some protocols of course, but ultimately the decision falls on the President and CEO of the Fed’s New York bank. That would be William C. Dudley, the former Goldman Sachs chief economist until 2007.
You’re going to hear about CFTC regulation 1.25, if you haven’t already.
You see, 1.25 has to do with allowing firms like MF Global to invest customer assets in foreign government bonds. But the CFTC realized that was a bad idea and were in the process of changing the regulation to NOT allow purchases of foreign sovereign debts. Only, the change never happened. It got “delayed” by the chairman of the CFTC, who supposedly got lobbied hard by Corzine to not implement the new rules. Who is the chairman of the CFTC? That would be Gary Gensler, who, oddly enough, worked for Jon Corzine when he labored for 18 years at, guess where… Goldman Sachs.
I’m not going to take this too far by speculating that Corzine was betting on things turning around in Europe, maybe partly because another Goldman alum, Mario Draghi, recently became the head of the ECB. The ECB, if I’m not mistaken, has something to do with Europe’s finances. But I could be wrong.
So, did you figure it out? The common denominator is the usual suspect: Goldman Sachs cronyism. That’s one hell of a fraternity.
There are other Goldmanites in the Corzine web. But, alas, I’m getting tired of picking on poor, poor pitiful Goldman Sachs… NOT.
Okay, last but not least, good old House Majority Leader Eric Cantor called in Rep. Spencer Bachus, he of insider trading fame, and quite by chance also the Chairman of the House Financial Services Committee, that’s thankfully looking into that whole silly Congressional insider-trading thing, and told him not to do anything.
It seems that Mr. Cantor wants to just take it slow and not rush to judgment on the whole affair.
Try chewing on that for a while without getting sick to your stomach.
Tags: austerity measures, banks, crony capitalism, ECB, euro, Europe, Gary Gensler, Goldman Sachs, IMF, J. Christopher Flowers, Jon Corzine, Mario Draghi, market watch, MF Global, PIIGS, Rep. Spencer Bachus, stimulus, William C. Dudley
There’s a ton of “insight” to be meted out about what’s going on in the market. You’ve heard most of it from me, and everybody else. But today and tomorrow will be all about being an insider at the meetings going on over in Europe.
Oh, to be a fly on the wall at those meetings…
What we couldn’t do with a little “inside information!”
But we can’t be there, and besides, that would be insider trading, wouldn’t it?
So, we’ll all just have to stay glued to CNBC and Bloomberg to see what the future holds for us all.
Speaking of trading on inside information…
Have you heard about the hearings up on Capitol Hill?
Oh yeah, there’s been serious discussions in Congress – by Congressmen and women -about reports of insider trading being conducted by privilege insiders, namely, some of their own.
It seems our always honest, always on-top-of-it, always looking-out-for-themselves Congressional leaders and their rank (and I do mean rank) and file are at it again, proving that although their net worth to the public may be zero, their access to non-public information is priceless.
While privately expressing indignation that their day trading jobs (conducted simultaneously with their legislative duties, so as not to distract them from either pursuit) should ever be subject to public scrutiny, lawmakers nonetheless held hearings about their access to inside information.
I guess to let Americans know that they are not crooks.
Last week, the Senate Committee on Homeland Security and Governmental Affairs convened a get-together to ask each other if they knew anything about it and what to do about it, if it was true.
Nothing really happened.
Kind of like the deficit reduction talks, they decided to talk more about it in the future, although they weren’t sure there was anything that needed fixing.
After all, one witness, Indiana University law professor Donna Nagy, told the Committee that Congressional insider trading was subject to anti-fraud provisions in federal securities laws, as well as federal mail and wire fraud statutes. In that case, they don’t need to change anything; the Securities and Exchange Commission is on the case.
And thank goodness for that. I mean, thank goodness the Senate has no power over the SEC, other than to vote on their budget and on their chairman.
Not that they would ever threaten to withhold money from the powerless, oops, I mean powerful, regulatory body to subjugate them to their will again… because they just threatened that recently (more on that one another time). But then again, that was probably just part of their deficit reduction talks…
No, there’s no undue influence to worry about in our government, with all its checks (and I’m not talking about payoff checks) and balances.
Thankfully, because we have such a great balance in Congress, after the Senate hearings last week the House held its own little “social” just two days ago.
The subject – believe it or not – was insider trading by Congress and their aides.
There the balancing act over at the House was really in evidence. Really, imagine balancing the talks about insider trading in Congress when Spencer Bachus, the chairman of the House Financial Services Committee presiding over the investment club meeting, is one of the most egregious of the alleged insider traders.
(I only use “alleged” because I like that word, it sounds so lawyerly, and I am talking about our lawmakers, don’t you know.)
As far as Rep. Bachus, you just have to love his comment in the Wall Street Journal recently about the insider trading charges (oops, I mean discussions), when pinned to the mat about his excessive and very “timely” options trades conducted immediately after coming out of closed-door emergency meetings with the Treasury Secretary and Fed Chairman back in 2008.
He said, “More lawmakers should invest in the markets to better understand them.”
Too bad he and the rest of Congress didn’t invest all their net worth in mortgage-backed securities right before the crash, and if they had anything left, in MF Global.
But I digress.
Oh, you want me to mention that Jon Corzine, former Senator from New Jersey, will be visiting his old chambers today to tell his Senate buddies how not to invest by leveraging segregated customer funds in high-flying – make that high-yielding – bonds issued by low-flying PIIGS? That will be some good theater.
Oh, I’m still digressing.
Allow me to restore my sense of “balance.”
I was talking about how the House hearings were being conducted by day-trading master Bachus. But in all fairness to him, you need to know that he was joined on the Committee by Rep. Gary Ackerman, a Congressman who received shares of stock he never paid for, for a favor he did in his official capacity.
It’s not insider trading if you don’t pay for something, right?
Back to my balancing act. The Senate committee looking into insider trading had two committee members who are equity-trading buffs.
Sen. Claire McCaskill nicely timed a half-million-dollar trade in Berkshire Hathaway right as the Big Bailout was signed, out of which Mr. Buffett’s (he of not-so-clean hands) Berkshire was the recipient of some $90 billion, in one form or another.
And that Sen. Tom Carper, also on the committee, was a rabid trader of healthcare stocks during the healthcare debate in Congress.
Not that that means anything, does it?
No, it’s all about balance in Congress.
Thank heaven, if there is one, that we elected these people.
P.S. Thanks for being a (big) part of Wall Street Insights & Indictments. The feedback I get from my readers is tremendously valuable. I need you to tell me when you “get” what I’m throwing out there… and, even more importantly, I want to know when you think I’m dead wrong. That’s why I encourage you – today – to share your own thoughts on this story. Just go to stopinsidertradingincongress.com now to cast your vote.
Tags: congress, insider trading, Jon Corzine, MF, Rep. Gary Ackerman, Rep. Spencer Bachus, SEC, Sen. Claire McCaskill, Sen. Tom Carper, the Fed, Warren Buffett
“Rudolph with your nose so bright, won’t you guide my sleigh tonight…”
Thank goodness there’s a light out there somewhere, so we can see what’s coming.
And judging by last week’s market action, guess what?
Santa Claus is coming to town!
Ho, ho, ho, what a rally. The Dow Jones Industrials rose 787.64 points, a 7.01% jump, making it the venerable benchmark’s second-best weekly up-move ever! The S&P 500 rocketed up 7.39%. The Nasdaq Composite shot up 7.59%.
But the real winner was the broader market, encompassing the less muscular household names ensconced in the Russell 2000; it rose a whopping 10.34%.
Speaking of the 10% gainers club, guess who else got their tickets punched on this sleigh ride? Not surprisingly (considering a little thing called “short-covering”), Italy was up 10.4%, Spain was up 10.24%. France was up 10.78%, and Germany was up 10.7%.
The week before last, not one single stock market in the world advanced by even a hair. Last week, every single key stock market in the world rose – and very impressively.
Oh, wait a minute. There was one little country that actually fell almost 1%. Good thing they’re not on anybody’s radar and don’t matter much. Who was it, you ask?
Ho, ho… uh-oh!
In fact, China was the only real “reality check” on the bullish stampede last week.
The Chinese government lowered the reserve ratio it makes banks hold against loans outstanding and the new ones they make. They did that, not because they’re little elves cobbling together market gifts, but because the Chinese credit markets are getting uncomfortably tight. They did it to ease into further easing. They did it gently – as opposed to lowering interest rates – to add liquidity to their banking system.
The same banking system that’s afraid of (and very exposed to) Europe.
Oh yeah! Europe, we almost forgot didn’t we? There’s something going on over there, right?
No, no, no… it’s over, didn’t you just read about how all the world’s markets rose last week? Didn’t you hear the good news? Don’t you know that the U.S. Federal Reserve huddled with central bankers from the ECB, the U.K., Canada, Japan, and Switzerland to lower the interest rate they charge on dollar swaps?
You know… dollar swaps… those little arrangements that allow foreign banks to swap their unloved currencies for dollars. They really come in handy when there’s a panic and a flight to the safety into U.S. Treasuries (whose purchases must be made with dollars, thank you), or some unlikely black swan event that never happens… kind of like what happened in 2008. But, like I said, that never happens.
Thank you China, for one reality check.
Here’s another: Adding liquidity on an essentially massive scale, in a globally coordinated fashion – kind of exactly like what the Fed just orchestrated (at the behest of America’s biggest banks, by the way, and the quivering Europeans) – isn’t a sign that Santa Claus is coming to town.
It’s about getting ahead of a potential meteor hitting us and causing a nuclear winter… this winter, as in any day now.
Oh, don’t worry; I’m just saying that for dramatic effect. Silly me, as if…
Sorry, lost my holiday spirit for a second there. About that rally!
Will there be continued momentum? That depends on… Europe.
Remarkably, if you look almost any or almost all the world’s key markets in terms of their three-month, six-month, one-year and two-year charts, they are eerily similar. Talk about correlation, wow!
We’re all near the same place at the same time – a place from which we can either rally or tank.
My bullish scenario stems from the fact that we can’t take a black swan event. It would be catastrophic for global markets.
Of course, Europe is the ugly duckling that could be that black swan.
For the life of me, I have to be bullish at this very, very critical juncture for global markets. Why? Because I’m not the only one looking at all this correlation. The Fed sees it, the Europeans see it, and the whole world sees it.
Europe has to come up with a plan this week. They have to.
It doesn’t have to be an immediate fix – there isn’t one. But it has to make sense to the markets and essentially be bigger than the markets.
Is that possible? Is there any fix for anything that’s bigger than the markets? Only if the fix is a massive coordination, on an unlimited, global scale, backed by credible measures and the firepower of the world’s central banks.
We got the first whiff of that on Wednesday. That was the market’s shot across the bow.
It was a silver bullet aimed at the shorts. And it worked beautifully. It was so effective that I can almost see the Bernanke and Draghi snickering together and looking out from their bunker, as if to say, if you liked that silver bullet, you’re gonna love this silver bazooka we have, and watch out, we will use it.
I can’t stand in the way of firepower like that. Well, maybe you shouldn’t. But I will.
I will, because there’s a chance that I’m wrong (yeah, it happens, I know, you can’t believe that, can you?).
Maybe, just maybe, and this is going to get me in trouble, I know it, maybe Europe will drop-kick Greece, and maybe Portugal, at the end of this week, or over next week-end?
Maybe they don’t have any hope of working out all their problems…
Maybe the French say, screw it, we won’t risk our AAA status, which will immediately get cut if they agree to backstopping a deeper bailout pool for the PIIGS, because they can’t afford it.
Maybe the Germans will say achtung baby, fold their arms and let the chips fall where they might. It could happen.
So, I’m going to add to my shorts here. I’m going to add up to the Dow reaching 12,200.
If I’m wrong, I’ll get out very quickly. If I’m right, then things will be really wrong.
But I’m a trader; this is what I do to make money. I take risks.
On the other hand, we could be setting up for a short rocket ride higher, which is okay with me, because I have my share of long positions too. However, they are all locked-down with stop-loss orders in the event that the correlation that’s here ends up being the Grinch that steals Christmas.
Stay tuned… This could be one heck of a week, one way or another.
Tags: Ben, China, DJIA, dollar swaps, ECB, Europe, Mario Draghi, market watch, Nasdaq, PIIGS, the Fed
In yet another sign that markets are broken, yesterday’s huge market advance came on the heels of two presumably separate (yeah, right) central bank moves.
Both were designed to add liquidity and support to shaky and dangerously deteriorating markets.
(That was good news?)
First, China lowered the reserve ratio its banks have to hold against loans they make. They didn’t do that because things over there are rosy. They did it because the property market is teetering and financing has been drying up.
While it’s true that many Chinese buy homes and apartments with cash, plenty also finance their purchases. But it’s not the property market end-buyers that the central bank was worried about. It is the property developers and huge state-run corporations who are feeling the pinch of China’s tightening credit markets.
Without financing – the jamba juice of growth – everything starts to slow down.
We’re talking about China as if the impossible is always possible. But, I’ll say it myself: What if slowing down turns to stopping, which turns into a sell-off, or, dare I say, a crash? Okay, I said it.
The next step for China is to start actually lowering rates. That’s a lot more serious a move than fiddling with reserve ratios (which says, oh don’t worry, we’re not worrying, it’s just a minor adjustment that’s needed to stave off this big thing hanging over us). When they start cutting interest rates, we’ll be watching how big and often the cuts are.
If you’re watching GDP growth in China, Interest rate cuts are the canary in the coalmine.
Second, over in Europe, things are so bad that governments and the European Central Bank – which is itself strapped and sapped of any meaningful authority, but worse, lacks meaningful resources – needed Wall Street executives to do their bidding for them.
What happened yesterday morning had been discussed for some time and pushed by Wall Street executives worried about contagion crippling their banks (wait a minute, aren’t they always telling us publicly how healthy they are, paying dividends and bonuses and all?).
Anyway, what happened was that the good old lender of first and last resort to the world (thank you, U.S. taxpayers), the U.S. Federal Reserve, coordinated with five other central banks (Canada, Japan, England, Switzerland, and the ECB) to provide U.S. dollars via swaps to needy borrowers in Europe.
What they did was to lower the cost to borrow dollars in a swap arrangement by one-half of one percent for central banks, who could then parcel out dollar loans to battered and broken banks.
It’s not a coincidence that the swap facility was first set up in 2007, as the credit crisis in the U.S. and globally was putting pressure on banks and financing markets everywhere.
So, call me skeptical, but, when fears of a global meltdown prompt central banks to start opening liquidity spigots (let’s call it what it was, a coordinated effort by the Chinese, the Fed, Europeans, and the Japanese)… it’s either a timely plug, or too little too late.
Lastly, in case you missed it, this liquidity hose came out exactly after rating agencies lowered ratings on 37 banks in Europe and pretty much all the big banks in the U.S.
Sorry for the lecture, but when banks’ credit ratings are knocked down, it creates higher financing costs for them, because investors become more apprehensive of lending to them, and that includes banks lending to other banks.
Kind of reminds me of heading into the depths of the 2008 crisis. But then again, this is nothing like that, right? (Yeah, right!)
Bottom line, this was like a high school dance where the ugly ducklings were all led by their trembling hands to the dance floor by the school studs… to let them know they were at least going to be offered a fling on the floor, if not eternal love.
So Why Did Stocks Rally So Much?
Because shorts ran for cover; because institutional managers looking at a possible year-end rally and had been fearfully sitting on the sidelines jumped on board to keep their jobs; and because markets always react to added liquidity by rallying.
Plop plop, fizz fizz, oh what a relief it is!
But by so much? Come on. Oh, you didn’t get in? Don’t worry, you’re not alone…
By the time markets opened yesterday, the rally was over. The futures reflected the need for short-covering and institutional buying, and so it was as soon as the opening bell sounded. Benchmarks went up parabolicly and leveled off all day before making a last-minute push higher – as if to say, “Take that!”
There wasn’t a lot of buying on the way up, folks. Sellers simply pulled their offers, and buyers grabbed the next available stock at whatever prices they had to pay. And that scenario played itself out in a matter of minutes.
Throughout the rest of the day, buyers were buying at the loftiest prices seen in months. Sellers were selling for sure at those high prices, but there were still an overwhelming number of Johnny-come-latelies buying at the highs so they could say, “Look, I own these stocks that rose in the last rally, aren’t I smart?”
If we don’t get more coordinated action on Europe, if there is no near-term resolution or silver bazooka (yesterday’s actions were the “silver bullets” I talked about on FOX Business News on Monday), if the rates sovereigns have to borrow at keep rising, if another big bank (like Dexia) W needs rescuing, do you think the late buyers of stock yesterday are going to hang on to their positions?
This is crazy. Markets are broken. Everything is broken, and the Federal Reserve keeps shoving our heads into the ground so we can’t see that we’re about to get mowed down.
Was I surprised by yesterday’s market moves? YES! I figured a 2% move, at best. I was half-right, but more importantly, I was half-wrong.
Now you have to ask yourself, as I ask myself, can we keep going higher?
Yes we can. And me personally, I’m going to add to my shorts all the way up, that is, as far as “up” ends up being.
Been here, done that.
On the “Indictment” Side of Things…
I said I was going to give a shout-out to one of your heroes. He used to be someone I admired, but not for a while now. He is revered. He is an oracle. He is the Oracle of Omaha.
Good old Warren Buffett has been really making me sick for more than a few years now.
The guy is the confidant of presidents, central bankers, some of the too-big-to-fail banks – which he owns big chunks of (or worse, lends to like a loan shark) – governments, and millions of awe-struck groupies who hang on the homilies he utters in his quaint, “aw, shucks,” down-home, you can trust me manner.
He should just shut the heck up and say, I’m nothing but a greedy, egotistical banker in my own right who professes to hate bankers (though I own a bunch of their asses) and am clever and connected enough to make money on inside information that really isn’t inside information if all my confidants come to me asking me what they should do.
In public, Buffett calls derivatives “weapons of mass financial destruction.” Really? Then why does Berkshire have an approximately $63 billion position in derivatives?
Why did Buffet have his lapdog, Sen. Ben Nelson from Nebraska, pressure the Senate Agriculture Committee (in April 2010) to exempt existing derivatives holders from new collateral requirements meant to safeguard the whole financial system? Oh, that would be because if applied to Berkshire’s derivatives positions, Buffett would have to post some $8 billion in cash as collateral. Now, if that happened, how would the Oracle be clear to see his next pick-off target and have the cash handy to swoop in when destructive derivatives elsewhere cause the opportunities he gorges on?
How about that for powerful – and clever?
How about Buffett’s insurance company General Re committing fraud in 2000 through 2001 by aiding and abetting AIG to “manipulate and falsify their reported financial results,” according to SEC charges? They didn’t admit any wrongdoing (who ever does?), but they still had to pay millions in fines.
How about Buffett coming in to save Goldman Sachs, right after it became a bank holding company to get Federal Reserve rescue money, and right before the New York Fed gave Goldman Sachs $14 billion in cash, exactly when they were teetering on oblivion (but, not according to them, of course)? Now, that’s good timing, folks.
I’m not saying that Buffett had any inkling that the Fed was going to throw Goldman a few undeserved billions from the bailout money taxpayers provided AIG (some $180 billion) for, guess what, derivatives contracts that Goldman wanted AIG to pay up on. The funniest thing (NOT!) is that the contracts were paid to Goldman in full when they weren’t worth anything near 100 cents on the dollar.
Anyway, Buffett may have been talking to Tim Geithner, then-head of the NY Fed, but I wasn’t there. However, I think they know each other because Geithner, when he subsequently became Treasury Secretary, went to see the Oracle almost immediately upon taking his oath. I wonder what kind of oath to the Oracle he was taking under his breath…?
There’s so much more…
Like how the Oracle defended Goldman in its fraud case regarding the $550 million fine it had to pay to – you guessed it – not admit it did what it did.
Or, my personal favorite, how the Oracle saw the future by owning some 20% of Moody’s while it made billions falsely rating, guess what, derivatives (which are “weapons of mass financial destruction,” you know). And how Moody’s was protected as Buffett, in the heat of the battle over what helped cause the crash, divested himself of Moody’s shares at pretty darn good prices.
And, when asked by Phil Angelides, chairman of the Financial Crisis Inquiry Committee, about a McClatchy newspaper report that Buffett got confidential information from Moody’s executives about the true state of the mortgage-backed securities markets, whose products Moody’s had stamped AAA for their usual fees, he denied it. Even though there are emails that were submitted to the Committee by one of the Moody’s executives to prove it…
How come none of us got that memo from Moody’s? And how come no-one has seen the email?
That’s power, folks. That’s the power of the folksy Oracle.
As I said, there’s more, there’s a lot more, dirt on Buffett.
Some of the latest and greatest is in Peter Schweizer’s new book, which was the subject of a blockbuster 60 Minutes two weeks ago. Funny thing though, there was nothing in the segment about Warren Buffett, even though the whole show was based on Schweizer’s book.
But there’s plenty in the book, “Throw Them All Out,” about Mr. Buffett’s inside dealings. Please, get the book and read it, so you don’t think I’m making this stuff up.
Is Buffett an Oracle, a deep-value investor who does tremendous analysis of his targets, or a trader who makes multi-billion dollar decision while “lathering himself up in his bathtub,” which is where he said he was when it came to him to buy into Bank of America. Some due diligence. Loan sharked them the next day…
Mr. Buffett, my hat’s off to you. You are one of the greatest crony capitalists in America.
Tags: AIG, banks, Berkshire Hathaway, China, derivatives, dollar swaps, ECB, General Re, Goldman Sachs, interest rates, market watch, Peter Schweizer, SEC, Sen. Ben Nelson, Throw Them All Out, Timothy Geithner, Warren Buffett