Archive for June, 2012

These Days, Manipulating the Markets Earns You a Slap on the Wrist

32 | By Shah Gilani

Heaven can wait.

There’s a passage in the Bible that says, “The Kingdom of the Father is spread out upon the earth and men do not see it.”

Bankers see it.

The whole earth is heaven for the big banks. They rule over it like petty, greedy gods.

And that’s not because they’re too-big-to-fail; it’s because they’re too-big-to-control and have it too-good-to-ever-change their sleazy, self-serving, corrupt ways.

The latest proof of big bank’s criminal ways, that they’ve been manipulating Libor – which isn’t news, I was writing about this four years ago – isn’t an indictment. It’s a signed, sealed, and delivered verdict of “guilty.”

(Check this out, I get credit from a group of fraud lawyers for being first to call this out right here.)

Here’s the deal: Barclays, a monster British bank, was under criminal investigation for its role in fraudulently manipulating the London InterBank Offered Rate (Libor). It settled charges late on Tuesday with Britain’s Financial Services Authority (FSA), the U.S. Commodity Futures Trading Commission (CFTC), and the U.S. Department of Justice.

Yeah, about that “justice” thing…

Barclays “settled” by paying $92.8 million to the FSA (a record fine), $200 million to the CFTC (another record), and $160 million to the DOJ (a piddling amount).

But, hey, you know, they’re sorry and all that.

Sorry they got caught, that is. And they’re not alone. There will be a bunch of other big banks paying for this gross game of manipulation. And all of them are household names.

I’m not going to get all worked up over the insanity of how little the fines were on any relative basis, compared to how much Barclays made or saved (including possibly saving itself from implosion, worse than it fared in 2008).

Or how insane the “deferred prosecution” garbage is that accompanies these “settlements,” on account of the fact that they don’t really admit guilt; they just pay the pipers (regulatory extortionists who’d rather collect potty money than put criminals behind bars… oh, don’t get me started).

And I’m not going to get all over the fact that a few bigwigs at Barclays are going to forsake some compensation this year, because although they’re not guilty of anything, you know, they’re just going to take one for the team, you know.

No, I’m not going to preach. It’s not Sunday, and this ain’t Sunday school.

This is Heaven, folks… for the big banks, anyway… and here’s how it works.

What Barclays Did (and Why It Stinks)

Libor is really, really, really important.

It’s a bunch of interest rates that range from overnight rates to one-year rates. These rates are important because they are the benchmark, or “reference,” rates for some $350 trillion in OTC (over the counter) swaps, $10 trillion in loans, and $437 trillion in CME (Chicago Mercantile Exchange) Eurodollar contracts (those numbers are according to the CFTC), and trillions of dollars in derivatives contracts worldwide.

In other words, the cost of borrowing for all these loans and financial instruments is based on Libor.

Libor rates – there are 250 of them across different maturities and in different currencies – are calculated daily out of London. Generally, 18 big banks (the “panel”) post, in interest rate terms, what it would cost them to borrow (on unsecured terms) from other banks. They submit their numbers between 11:00 am and 11:10 am (London time) to Thomson Reuters. Reuters calculates the official number by throwing out the highest four entries and the lowest four entries and averaging the middle 10 posts.

What’s been going on is that Barclays and the other big banks responsible for honestly submitting their cost of money for all those maturities in the different currencies have been submitting rates that are self-serving – as in lying to make or save money for themselves.

Traders at the banks have been leaning on the designated “submitters,” who often sit within earshot of their screaming cohorts, to submit very high or very low rates because their billions of dollars of trading positions are affected by those rates.

But not only were traders trying to influence rates, senior managers were in the game in an even bigger way.

You see, when banks submit their interest rates, they’re supposed to be saying, this is what I’d have to pay to borrow based on who will lend to me at what prices. If they post really high numbers, they’re in effect saying, we have to pay more to borrow, because the other banks are charging us a higher rate, because they think we’re a higher risk to lend to.

During the 2008 credit crisis, banks weren’t lending to each other, but they still posted artificially low Libor rates. Why? Because they didn’t want to be seen as essentially illiquid or insolvent. Because if they couldn’t borrow cheaply enough, it would be “game over” for them.

So management was in on the manipulation. They were all in on saving their own butts and manipulating rates to enhance their trading books.

What’s the big deal?

There are tons of ramifications. Some real and some theoretical. “Theoretical” meaning they can’t be proven.

Here’s one. By artificially keeping rates low, did the manipulation game create more cheap lending across all mortgages and loans during the run-up to disaster? Did these banks facilitate the lending by which they all prospered across the board (until the music stopped and there weren’t enough chairs; actually there weren’t any chairs) by manipulating rates? You bet they did.

That ain’t theory, I’ll argue it all day long with any takers.

Lying, cheating, and, to put it politely, manipulating banks rule the earth. They’ve created their own Heaven. And we’re all facing Hell because of it.

It’s criminal; no, not what they do (that’s business as usual, folks). It’s criminal that regulators and governments haven’t put the guilty in jail, but let them pay fines and go back to their dirty business as usual.

That’s why Heaven can wait. But we can’t.


What the Health Care Ruling Means for These Stocks

0 | By Shah Gilani

As we await the Supreme Court’s decision this week on the group of laws known as Obamacare, Stuart Varney asked Shah about the implications for investors. What sectors and stocks will do well if the law is struck down? Which ones will thrive if Obamacare passes?

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Our Capital Markets are Broken

61 | By Shah Gilani

The markets are broken.

And what has to be done to fix them likely won’t get done. That’s because the folks capable of fixing them are actually captives of the folks who like them the way they are.

That’s the bad news.

The good news is, if you understand what’s wrong and who’s responsible, you can actually make a lot of money playing the game the way it’s been set up.

Let me explain.

First of all, what’s happened isn’t by some grand design. There is no great conspiracy to screw the public. (Not this time.) Rather, incremental changes in various corners of the capital markets manifested innumerable unintended consequences.

The net result is this: Our capital markets aren’t functioning for the greater good of the economy and the nation. And the public is getting screwed. But you knew that.

The markets have become a kind of stacked deck in a rigged card game. A game being played by a bunch of whispering pros against mostly deaf, dumb, and blind amateurs (yeah, I’m taking about too many people you know) in a shady casino overseen by pit bosses who work for the house – which is owned by the pros who set up the game in the first place.

I’m not going to break down what the incremental changes were that got us here. I’ve done that over innumerable articles I’ve written for Money Morning, Forbes, Wall Street Journal’s MarketWatch, and right here.

This isn’t about how we got here. This is about proving where we are now by means of a kind of grand supposition that hopefully is going to open your eyes. And probably is going to scare the you-know-what out of you.

Earlier I said the public is getting screwed, but you knew that. How do I know that you know the public is getting screwed? Most people are out of the market. They are either on the sidelines or out of the game for good. They know the markets are a casino, and most people have come to realize that they have no idea what the game is, let alone how to play it.

And that, children, is the unhappy ending. Precisely because the public is so leery of losing their shirts and knickers in the strip poker club, investing is a thing of the past.

Long-term investing is dead. Long live short-term trading.

Volatility has undermined the kingdom of “buy and hold,” of building wealth by accumulating shares of solid companies, and of a future of promises of an easy retirement with a nest egg of safe investments yielding something, anything we’re capable of living off of.

Want proof the public has exited stage left? I’ll give it to you in the simplest of terms. You need this proof to understand that a huge part of the volatility that is now on the back of every card in the decks we’re playing this crazy game with isn’t going away.

Look at volume. Keep looking. It’s there; it’s just that you can’t see it because there’s so little of it. There’s no volume because the public has left the casino.

The ICI (Investment Company Institute) recently reported that since the great rally (yeah, that one that’s gone missing lately) began last October (we were up some 25%), some $42 billion has exited equity mutual funds.

Since the 2008 credit crisis and market crash, some $400 billion has exited the markets.

I’m not talking about what was lost. I’m talking about money that came out of the market because people had had enough – enough losses and enough of their shirts being ripped off of them in the strip game.

According to Credit Suisse Trading Strategy, average daily volume is now half of what it was at its peak in 2008. We’ve gone from an average of some 12.1 billion shares being traded on a daily basis to an average of just over 6.5 billion shares being traded daily now.

New York Stock Exchange daily volume (and the NYSE is still one of the principal exchanges in this country, although there are too many others now) is down 23% year-over-year.

Oh, and that’s the good news.

You see, inherent in the low daily volume today is a too-often-ignored little piece of extraordinarily frightening news…

Are you ready?

About half of the volume today, on any given day, is the result of high-frequency traders plying their game. And their game ain’t investing, folks.

So, if you want the truth (“You can’t handle the truth”… I love that line!), any rally we see is based on traders trading and not investors investing. In other words, there is no backstop. There are no investors waiting with wads of cash to pick up shares when they slip a little.

There is only the great unknown under wherever we go, under whatever heights we get to.

And that’s what scares the hell out of me.

Oh, I forgot, it’s Sunday morning and I’m supposed to throw in some hopeful news in these sermons (am I preaching?).

Here it is: Call the lack of volume, which is the result of a lack of long-term investors, the “fundamentals” of what’s scary in the market. The “technicals” are worse.

Remember the “flash crash?” We still don’t know what caused it.

You probably don’t remember that BATS itself (another fairly large exchange venue where tons of shares are traded, well maybe not tons, there aren’t tons traded anywhere anymore) decided it was time to do the first IPO on its own exchange. And guess who their first IPO was for? It was an IPO of BATS shares; how cool is that?

Only tragedy struck when they had to pull the IPO on its IPO debut because the exchange blew up. Not that that is likely to happen at any other exchange, so don’t worry.

Oh, wait. Didn’t that just happen at the NASDAQ with another small inconsequential IPO that you may recall goes by the name of Facebook Inc. NasdaqGS:FB)? Oh, yeah, that fiasco.

Bad technicals, folks.

The markets are broken. The fundamentals are bad, and the technicals are bad.

But keep on investing. You’ll do just fine.

Or, you can join the traders at the insider’s card game. And guess what, I have seats at my table. I’ll teach you how to play the game.

And the message (sermon) to take home today is: “Rules are alright, if there’s someone left to play the game.”


A (Brilliant) Light at the End of the Tunnel

22 | By Shah Gilani

It’s about time there was some light at the end of the tunnel.

I’m talking about the dark, “are markets safe, is it time to invest” tunnel. And I’m not talking about this next round of quantitative twisting stimulus meant to “light up” the dark hearts of short-sellers.

The illumination I’m seeing is the result of, believe it or not, a little something called bipartisanship.

No, that’s not a gay cruise line. That’s a gay, as in happy, coming together of opposing political views to get something done in Washington. So what if that something is really about getting votes? Let’s not look a gift horse in the mouth.

Finally a Republican and a Democrat are saying the unthinkable. After all the brouhaha over the botched (unless you’re an insider who sold at the top) Facebook Inc. (NasdaqGS:FB) IPO, there’s breaking news out of Washington that they smell something funny going on in the capital markets.

By shining his Bic lighter on the Facebook fiasco, Democratic Sen. Jack Reed of Rhode Island, a subcommittee chairman over at the Senate Banking Committee, told the Wall Street Journal, “The perception today, and perhaps in too many cases the reality, is that the retail investor comes in at a disadvantage.”


More to the point – and more forcefully, because he actually penned a 15-page letter to SEC Chairman Mary Shapiro – Republican Rep. Darrell Issa of California, of the powerful House Oversight and Government Reform Committee (not much need for that, huh?), demanded the SEC address how egg got on the face of our capital markets thanks to Facebook’s underwriters fleecing unsuspecting stoolies who bought the IPO.

The crux of the matter was simply laid out, in unequivocal Washingtonspeak, when the oversight committee expressed fears of a crumbling capital markets system if laws continue “to protect, over-regulate, and coddle our financial institutions.” Brilliant!

Now I get it. Financial institutions are screwing up everything because they’re being protected and coddled precisely because they’re over-regulated. Brilliant!

About that light…

It was previously directed at over-regulation by Mr. Issa when he helped pen the JOBS Act. You know, the Jumpstart Our Business Start-ups Act. You may not know about the act, because it’s so new. But believe me, you will come to know about it when it opens up a Pandora’s box of criminal activity and rip-offs beyond imagination on the public, who are going to end up buying into start-ups that aren’t going to be regulated and don’t have to post honest and transparent financials for years.


You want some REAL light on the Facebook Farce? Here it is.

The deal was hot, thanks to more than 900 million Facebook “customers” who represented a new marketing paradigm. The hype was super-hyped by all the underwriters.

After whipping up the press, the pundits, and the platitudes, while behind the scenes telling big institutional clients that Facebook’s financial metrics might be deteriorating somewhat, lead underwriter Morgan Stanley – yes, at the urging of Facebook’s CFO -priced the IPO at the top of its new higher high range and pumped out more shares to the public.

The public, also known as the little people, the stools, the mini-Muppets, and the backstops.

While typically the public is allocated maybe 15% of IPO shares (still, through their begging and preferred status at their brokerages), in the Facebook case, they amounted to 26% of the lucky lovers of Facebook. That’s a nice backstop, to say nothing of the rest of the public supposedly lining up to buy the stock once it became available to them.

Good old Morgan Stanley even points to how good a job they did (it was all the Nasdaq’s fault, you know) pricing the IPO. They point out now that after it opened at $38, it soared from to $42, or $45, or whatever it got to, no-one knows but the Nasdaq, you know.

Seriously, you want some light on the capital markets in general? Here it is: They’re broken.

I’ll prove it to you on Sunday. Hint, hint, it has something to do with “trading.”

About that light… It’s a train barreling down the tracks, coming straight at us.

Now, if you’ll pardon the interruption, I’m going to address a very good question from a very smart reader of these pages, who had this query about one of these videos we keep sending you:

Q: In response to a question that is posed by the interviewer about the problem in the [Eurozone], Shah said that the EZ needs to establish something like the Federal Reserve here in the U.S., but that it would take too much time to prevent a backdraft. In your description of “the Matrix,” one of the six forces involved in the Matrix is the Federal Reserve. Why would Gilani suggest that Europe needs something like the Fed, when that is one of the manipulative forces in the Matrix? ~ John

A: Well, John, let me say this about that. The Fed is a manipulative force to be reckoned with. It is the banks’ bank and their political heavy hand.

That said, I’m unequivocally NOT for a “federalized” type of banking institution like our Federal Reserve being set up in Europe to manipulate all those countries for the good of the banking constituents who would “own” the European Federal Preserve of wild roaming banks.

My point was that actually walking down that path would theoretically calm European markets – and they may go there. But God help us if that’s the end game.

And while that would be bad for “free markets” (as if that’s what we have now, NOT), it would be great for those of us who understand the Matrix and trade around and through the manipulation foisted on the unsuspecting public.

Hope that answers your question.


How the Hated Banks Could Actually Save America

3 | By Shah Gilani

Is there a Matrix trade in the housing market?

In this five-minute video interview with Publisher Mike Ward, Shah lays out his remarkable (and surprising) theory of what could happen shortly. Shah believes you can make money in real estate now and down the road. This is a must-see.

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Investor Advocate Steve Pomeranz Talks to Shah

1 | By admin

Steve Pomeranz interviewed Shah this week.

Steve hosts the “On the Money!” radio show that broadcast to stations around the country, and he is a renowned financial advisor and investor advocate based in southeast Florida. He is also a subscriber to Wall Street Insights & Indictments.

You can listen to the recording of their 12-minute chat right here.

Together Shah and Steve discuss the “extend and pretend” game being played in Europe, as well as the reasons the financial industry is the ultimate liar’s club. Shah also spells out what CEO Mark Zuckerberg could do to make Facebook Inc. (NasdaqGS:FB) a “fantastic” stock.

“On the Money!” is a weekly show whose stated purpose is “to protect you from self-serving forces within the financial services industry.” (No wonder they like Shah!) You can learn more at the show’s website.

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Is Microsoft Worth a Look?

0 | By Shah Gilani

Shah made a brief appearance on Varney & Co. today to discuss rumors that Microsoft Corp. (NasdaqGS:MSFT) may be gearing up to release a tablet to compete with Apple Inc.‘s (NasdaqGS:AAPL) iPad. Will the move push the stock above $30? Shah weighs in.

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There is No “Book” on Being a Father

0 | By Shah Gilani

[Editor’s Note: On Friday, Shah delivered his insights on today’s Greek vote – and what it means for the rest of Europe – to his Capital Wave subscribers. He even had three new “buy” recommendation based what he thinks is going to happen. Hope you got them. If you happened to miss Friday’s alert, you can find it online at our subscriber-only website,]

Let’s face it: Father’s Day isn’t nearly as big a deal as Mother’s Day.

There are probably some good reasons for that. For one thing, our fathers don’t carry us around in their bodies for nine months or go through childbirth.

For another, fathers tend to not be around as much as mothers.

I’m not talking about fathers who abandon their families altogether. Let’s not go there. I’m talking about fathers who sacrifice to give their families the best lives they can.

They are real heroes. But we don’t always see it that way.

Sometimes kids blame their fathers for not being around enough because they’re working so hard. And when those kids grow up, they too often resent their fathers for not being there.

I see that a lot, especially these days, when things aren’t easy and work is too often hard to come by.

And I’ve heard a lot from my friends over the years that their fathers weren’t around because they were working and they always seemed tired and had little time for their kids when they got home, or on weekends, when they tended their homes and gardens.

My father wasn’t around a lot either. And as I grew up, we grew further and further apart.

It wasn’t until I realized how hard I was working myself that I actually understood what it takes to make a living. Taking care of your family by always being there for them, too, is no easy feat.

The truth is, you can’t be in two places at once, even though sometimes you have to be.

There is no road map to leading your family to perfect happiness. There is just no “book” you can buy on being the perfect parent. There are only books yet to be written and roads left to be travelled.

Now, years later, I realize how lucky I am to have my father and how lucky I am to be able to spend time with him. These days, we make time for each other.

My father is 95 and plays golf. He just had his second knee replaced so he could keep playing golf, because that’s where we spend time together. And it’s there, on the golf course, that I see my father enjoying whatever time he has left with the son he wished he’d had more time for when we were both younger.

But there’s no going back; there’s only today and the promise of tomorrow, maybe.

I’ve grown out of my resentment that my father wasn’t there enough for me and grown into understanding it and coveting every day we do have together.

So today, we’ll work on our golf games together, and at the 19th hole, with a pair of extra-well-chilled martinis in hand, I’ll say to him…

“Happy Father’s Day.”

Enjoy your day.


Why the Financial Industry is the Ultimate Liar’s Club

41 | By Shah Gilani

[Editor’s Note: We recently had Shah in our office to talk about the crisis in the Eurozone. His insight on the machinations of the central banks is as entertaining as it is enlightening. In Shah’s usual style, he reveals the Ponzi scheme they’ve got going. We’ll have this interview to you this afternoon. It’s worth looking for.]

Here’s a little bit of advice you can use to make money.

There’s big money in lying.

I’ll show you how it has worked for people like Beth Jacobson, who fell off the Wells Fargo “stagecoach from hell” after making millions pushing subprime mortgages there. And for Jamie Dimon, who I’d love to see get kicked off the JPMorgan gravy train, where he’s been lying for years, while making himself hundreds of millions, to ING Bank, who lied about doing business with Iran and Cuba to make millions in fees.

Here’s the thing.

When you know how the Matrix works, you can make money on the lies building up, and then make money on them being exposed for what they are.

First, let’s get back to our liars, because there’s a lot of humor in seeing them get caught in their lies…

One Woman’s Liar Loans

So, I’m reading this piece this morning in the Washington Post about Beth Jacobson. As I said, she used to work for Wells Fargo, peddling a lot of subprime mortgages, and now she’s calling them out on their “stagecoach from Hell” practices, ripping people off and everything.

And I’m flat-out laughing so hard that I actually start choking. I’m choking on the crap this woman is spewing, and on this garbage article that is so inane that it’s embarrassing as a piece of journalism, or whatever it’s supposed to be.

It makes me realize that, while I may be an annoying, in-your-face, no-holds-barred hammer at times, at least I take a stance for the truth.

In any case, Ms. Jacobson is now something of a whistleblower (though not really from the “inside” anymore, because she’s been out of Wells since 2007), on account of her claiming that the bank’s practice of targeting certain minorities and folks stupid enough to believe they were making millions – which they weren’t (and good thing they didn’t have to prove it by being talked into some high-interest no-document loans, against their better judgment) – and getting liar loans to buy houses they shouldn’t have dreamt about even at twice their actual incomes.

But, before she realized that Wells Fargo was a bad egg, harming all those innocents, this woman was the bank’s No. 1 salesperson (in the whole country, folks). She was selling, you guessed it, subprime mortgages. She was making a lot of money selling up to $50 million worth of liar loans and other toxic crap to her flock of innocents, year in and year out.

Then, strictly by pure chance, or God’s will – I’m never sure which is which sometimes – in 2007, right around the time that the subprime market hits a brick wall, poor little rich girl Beth is outed, I mean ousted, from Wells. Something to do with production; who knows for sure?

Now, though, the lies that she is foisting on the public are revolting.

She made millions soaking innocent homebuyers by placing them in high-fee (it’s all about the fees, folks; it’s always about the “what’s the best fee for me” deal, screw the Muppets) mortgages. As strange as this might sound, these are the same high-interest loans that these dumb (I mean innocent) homebuyers got saddled with. (You see, it’s the high interest rates that account for the high fees the salespeople are paid, or maybe it’s the other way around, either way… you get that, right?)

Then she decided to blow the whistle. Why? Oh, because her new job (she’s a self-employed, do-gooder, pay for services, for profit, you-know-what) is all about helping the same poor people she set up like bowling pins get their lives and foreclosed homes out of the gutter, for a fee… did I say that?

Now, let’s say you’re really good at lying. Then you get to run the liar’s lair.

That honor goes to Jamie Dimon.

The Leader of the Liar’s Club

Yesterday he lied through his teeth to the idiots and some strumpets whose campaigns he and his bank finance; yeah I’m talking about the liars in Congress. But this is not about them…

It’s about how Jamie lied about not knowing what risks the CIO was taking (he knew two years ago). He lied about their losses being a “tempest in a teapot.” And he is lying to the point that I’m going to vomit, when he says they were hedging and not prop trading.

All I’ll say about Jamie is that I used to respect him. Now I see him for what I had always hoped he was above being and doing.

If he is going to claw back some money from the JPM executives responsible for the lying and losses, he has to give back all his compensation, because he’s the leading liar at the liar’s club.

My point is this: The financial services industry starts on the ground floor, with individual liars lying for larger and larger fees for themselves. Then it moves up the chain to the lying executives, who overlook the liars below them to reap the large fees all their collective lies affords them. And it keeps going, all the way to the institutions themselves. (Not that they are not run by humans, they are, although sometimes it seems that the institutions themselves are built on concrete pillars lying in quicksand.)

And that’s makes the industry what it is… the ultimate liar’s club.

And as far as banks as institutions go, in 2009, Credit Suisse Group AG paid $536 million on account of a particular set of lies; in 2010, Barclays PLC paid $298 million on account of the same lies, Lloyds Banking Group PLC paid $350 million, and the winner and record holder of the highest “fine” for these same lies, with a total of $619 million, was just announced to be ING Bank, a unit of ING Groep NV.

What lies you ask? How about, in the case of ING Bank, “stripping” out transaction information that would have revealed that the bank was dealing with Iran and Cuba and channeling their money transfers through Manhattan channels (which most have to go through often enough). That is illegal, as in completely illegal, not on a regulatory level, but on a federal, trading-with-the-enemy level.

All of them did it anyway, for the fees, you know. All of them got caught, you know.
And all of them got away without being criminally prosecuted on account of them being offered “deferred prosecution agreements” also known as the liars’ labyrinth.

So, the moral of the story is… There’s money to be made lying, and there’s money to be made when the lies are laid bare. And you can have it both ways. That’s what this Matrix thing you’ve been seeing is about, and that’s what my Capital Wave Forecast folks have been doing for more than two years now.

I’m not lying.