Archive for February, 2014
I’ve written and railed about rip-off student financial aid schemes here for years.
And based on all the very personal stories I’ve received, I know many of you are outraged as well – even more so because of your devastating first-hand experiences.
Make no mistake: For-profit education companies are (more often than not) “rip-off traps” which condemn unsuspecting students into indentured servitude to greedy companies’ bottom-lines.
Well, there may be a White Knight after all.
The Beginning Of The End For The Student Rip Off Trap
His name is Richard Cordray and he’s the Director of the Consumer Financial Protection Bureau (CFPB).
This guy is smart, aggressive and has already smoked out some of Wall Street’s biggest scammers — including Fannie Mae, Bank of American and AIG.
Now he’s going after an even bigger scumbag company, filing a civil lawsuit against ITT Educational Services Inc.
In case you never heard of them, ITT Educational is one of the country’s largest for-profit educational services companies, providing undergraduate and degree programs through its ITT’s Technical Institutes and Daniel Webster College. In addition to its own schools, the company provides educational services to another 150 institutions in 40 states.
Among other allegations, Cordray’s suit claims the company offered a zero-interest loan, payable in full at the end of a student’s first academic year, assuming most students would never be able to repay it. Facing delinquency, the students were then forced to take out “high-cost private student loans” from the company to rollover unpaid obligations and continue tuition payments.
Cordray said, “ITT kept students in the dark about its lending model that it freely shared with investors. In fact, we found that ITT used its financial aid staff to rush students through an automated application process without affording them a fair opportunity to understand the loan obligations involved. In some cases, students did not even know they had a private student loan until they started getting collection calls.”
Most of the loans carry interest rates of 16% over their 10-year duration. Cordray likened the tuition charges to “financing your college education on your credit card.”
Not only are students burdened with onerous financial obligations at the ITT schools, those who wanted to transfer to less expensive schools didn’t know many of their ITT credits could not be transferred.
Of course, a spokeswoman for ITT said the college was prepared to defend itself against the CFPB allegations and claims.
In addition to the CFPB lawsuit, four state attorneys general said they’ve launched their own investigations and will take their own action. New Mexico filed suit against ITT’s nursing school. Illinois, Kentucky and Iowa are the other states investigating ITT. It’s highly likely other states will follow suit, as in lawsuits.
According to the American Banker, “The CFPB’s case was filed in federal court in Indianapolis, near where ITT is based. The lawsuit is seeking restitution for victims, a civil fine and an injunction against the company.”
This is just the beginning of states and the CFBP looking into for-profit education companies.
And it just might be the beginning of the end for ITT and some other rip-off for-profits, and who knows maybe some non-profit schools too.
By the way, there’s a way to make some very significant money on this news.
You see, the lawsuits are setting up a picture-perfect trade. One that I believe can bring you a flying fortune – faster than you would ever think. Go here and I’ll share all the details.
The bulls are running today, being chased by hot mergers and acquisitions news.
As I write this, the S&P 500 is at an all-time high and the Nasdaq Composite is at a 14-year high. The Dow still has a few steps to climb, but there’s a good chance it too will reach for new highs in the next few sessions.
According to Matthew Keator, the namesake at Keator Group, a wealth management firm in Lenox, Mass., “People are recognizing that while some economic data has been muted, there is still a lot of value in the market based on corporate cash positions and multiples. From a perspective of overall fundamentals, things look pretty good, especially relative to other asset classes.”
He’s right about investors recognizing value in the market, and that corporations are sitting on fat cash positions.
It’s the big hoards of cash that’s pushing mergers and acquisitions. And there’s value in the U.S. market. But that’s all relative.
As Keator points out, things look good relative to other asset classes. And he might have added that values look good here because the U.S. is the cleanest dirty shirt in the laundry.
Elsewhere around the globe, things aren’t so rosy.
The U.K. just saw a bump up in their unemployment rate, the emerging markets are struggling, China is grasping for laundry detergent to clean up its shadow banking mess, and gold — which has been rising furiously — is indicating that not everything is hunky-dory.
So if you’re heavily invested in U.S. stocks, you’re in good shape.
But there’s a lot to worry about.
Economic data has been mixed, which is putting it nicely. What’s nice right now is that investors are looking past a host of soft numbers in the U.S. and figuring the Fed will roll over its “put” positions that traders and investors have come to rely on as a floor for the market.
After all, it is their articulated policy to create a “wealth effect” by keeping rates low to pump up equity markets. For that, they deserve a gold star.
But — and it’s a big but — what’s underneath the Fed’s stimulus efforts remains to be seen. If the Fed continues to taper, as they say they will, and if rates rise (by that I mean if the 10-year gets back above 3%), will emerging markets freak out? Will the flight out of emerging markets accelerate? Will their attempts to stabilize their currencies by raising rates (some by huge amounts) slow their growth to the point that they actually falter?
Make no mistake, the U.S. is the place to be for investors. That is if you’re all in and have been all in, and have a plan to take profits here and there, and see the taper for what it really is, the beginning of the end of easy gains for the markets.
I see that. I’m taking profits and raising my stops. I’m starting to buy some puts. I’m finding shorting opportunities that on a risk reward basis are positively ripe.
There are asset classes that are vulnerable here.
Where is “here?” Here is making new highs in the U.S. as the rest of the world looks to be slowing down. Yep, I said it, slowing down.
I’m not the only one saying it. Christine Lagarde, who heads up the IMF, just came out with a warning that they are seeing a dangerous propensity towards disinflation in Europe and elsewhere. What the IMF is worried about isn’t disinflation. They’re worried about deflation.
The macro of all macro worries (besides a credit crisis in China that creates a “Lehman moment”) is that the more than $14 trillion in global stimulus since the last credit crisis hasn’t created enough “escape velocity” for global economies (we’re all in this together now) to grow on their own without Mama’s milk.
Bad weather in the U.S. will distort GDP numbers and almost all economic data measures we all watch to see which way is up, or if there even is an “up.” That means we’ll have to wait until the end of the first quarter and probably well into Q2 before we get any clarity on growth momentum.
Meantime, the market isn’t waiting. The new highs are a sign of optimism that the weather is just the weather and that when we thaw out, spring will arrive with all its green shoots and the economy will flower.
I can only hope that spring will see us “spring” ahead.
But I don’t hope when it comes to trading and investing. I take well-calculated, measured risk and reward positions. And right here, I’m starting to put on positions that will scream higher for me if the weather isn’t just a blinking yellow light, if global growth slips, if China has a Lehman moment, if the Fed continues to taper, if the rally is a head-fake.
Sure, I’ve got on my core positions and they’re rising with the bulls. But I’m also selling calls on them here. I’ve had a nice run and now want to garner more income. And if those calls mean my positions get called away, so what? I make more money. I can always get back in. And in this market, I’d do that by selling puts.
All this was to be expected as record amounts of money came out of equity mutual funds the week ending February 5, 2014. Any move higher was bound to see a lot of that money come back in… and it has!
That’s what I’m doing right now. But I want to know what you’re doing.
Your view and your feelings are representative of investors in general. You are the market when it comes to “retail” investors, when it comes to the “public.”
What are you seeing out there? What are you feeling?
When it comes to big banks’ bad behavior and the fines they pay to settle “allegations” — which are actually civil charges and which would be criminal charges if applied to any other business or in any parallel universe — things aren’t even close to what they seem.
Sure the headlines scream victory, at least monetary victory, for some ripped-off consumers, some hard-charging regulators, and our vaunted (NOT) Justice Department.
We think we hear the ching-ching of the Treasury Department’s cash registers ringing as they collect billions of dollars from miscreant, monster banks.
We think we can hear victorious regulators popping champagne corks as they celebrate settlement money coming in to prop up their budgets so they can keep going after these lawbreakers.
We think we can hear the cling-clank of consumers — who’ve been set up like bowling pins to be knocked down until the change falls out of their pockets at the feet of slobbering banksters — getting some of their stolen money back.
If that is what you think you hear, you’re tone deaf.
Here’s what’s really going on…
The headlines, like the ones that screamed JPMorgan Chase & Co. (NYSE:JPM) was paying a record $13 billion to settle misdeeds that may have accidentally contributed to the credit crisis and the Great Recession that maybe forever imposed on America’s middleclass and perennial underclass a new set of dream shackles, are BS. And I don’t mean back-stabbing.
Ripped-off consumers don’t get made whole. Regulators don’t keep a dime of what they extract. Only the U.S. Treasury rings its register on any regular basis… and you thought the deficit was declining on its own!
And the big banks? Not only aren’t they paying what the headlines trumpet, most of what they do pay, and far more disgustingly, a lot of what they say they are going to pay in restitution to consumers, they write off on their taxes!
That’s right, after they neither admit nor deny doing what they did, and settle on paying fines and other forms of remunerative compensation to prove they didn’t do anything wrong, they write most of those “expenses” off.
Of course those write-offs reduce their taxable income. So the public’s screwed again.
You didn’t know that? If not, don’t beat yourself up. Not a lot of people do.
But Congress does.
Some people in Congress actually want to do something about the games banks play with the settlements they negotiate with regulators, attorneys general, and the Justice Department.
But, of course, Congress being Congress, none of these “bills” have moved an inch.
Back on October 30, 2013, after JPM’s $13 billion settlement made headlines, House Democrats Peter Welch (VT) and Luis Gutierrez (IL) introduced the “Stop Deducting Damages Act of 2013.”
The bill as intended:
…amends the Internal Revenue Code to: (1) deny a tax deduction for any amount paid or incurred for compensatory or punitive damages in connection with any judgment in, or settlement of, any action against a government; and (2) include in gross income any amount paid as insurance or otherwise due to liability for punitive damages.
Then on November 5, 2013, Senators Jack Reed (D-RI) and Charles E. Grassley (R-Iowa) put forward their “Government Settlement Transparency and Reform Act.”
The bill as intended:
…amends the Internal Revenue Code to expand provisions relating to the non-deductibility of fines and penalties, to prohibit a tax deduction for any amount paid or incurred to any governmental entity relating to the violation of any law or the investigation or inquiry into a potential violation of law. Exempts from such prohibition: (1) restitution or amounts paid to come into compliance with any law that was violated or otherwise involved in the investigation or inquiry, (2) amounts paid pursuant to a court order in a suit in which the governmental entity was not a party, and (3) amounts paid or incurred as taxes due. Imposes new reporting requirements on governmental entities relating to amounts paid as fines or for restitution.
But neither of those “bills” came due.
Then on January 8, 2014, Senators Elizabeth Warren (D-MA) and Tom Coburn (R-OK) introduced to the Senate their “Truth in Settlements Act of 2014.”
Senator Warren explained the bill:
When government agencies reach settlements with companies that break the law, they should disclose the terms of those deals to the public. Anytime an agency decides that an enforcement action is needed, but it is not willing to go to court, that agency should be willing to disclose the key terms and conditions of the agreement. Increased transparency will shut down backroom deal-making and ensure that Congress, citizens and watchdog groups can hold regulatory agencies accountable for strong and effective enforcement that benefits the public interest.
Meanwhile, Senator Warren’s website tells us:
Under the Truth in Settlements Act, all written public statements that reference the dollar amounts of settlements will be required to include explanations of how those settlements are categorized for tax purposes and whether payments may be offset by “credits” for particular conduct. Companies that settle with enforcement agencies will be required to disclose in their Securities and Exchange Commission (SEC) filings whether they have deducted any or all of the dollar amounts of their settlements from their taxes; and federal agencies will be required to post basic information about settlements and provide copies of those agreements on their websites. To address concerns about confidentiality, the Truth in Settlements Act also requires agencies to explain publicly why confidentiality is justified in any particular instance. The Act also directs agencies to disclose basic information about the number of settlements they deem confidential each year and directs the Government Accountability Office (GAO) to conduct a study of confidentiality procedures and to provide additional recommendations for increasing transparency. These and other provisions of the Truth in Settlements Act will increase the transparency of government settlements and permit greater public scrutiny.
Where are these bills?
They were all DOA, as in dead on arrival.
Don’t bother looking to see if they’ve made any progress. I’ll tell you now, if any of them ever happen it will probably be in February, because it will be a cold day in hell before any of the big banks’ profits are meaningfully haircut by any “law.”
You want to know more about how settlements work, how banks negotiate them, how headlines about big fines are misleading? Read Part III of my series on settlements in today’s MoneyMorning.
But read it on an empty stomach, otherwise you might get sick.
By the way, did you see what I put together especially for you?
Click here. As you’ll see, I’m finally blowing the lid on the most lucrative trade on the planet.
This is very unique trade… one that has created some of the biggest gains in history. Guys like Paulson, Paul Tudor Jones, Templeton… they’ve made unbelievable amounts of money using this trade. George Soros used it to make a billion dollars – in a single day!
This strategy has been hidden from you because the folks on Wall Street don’t want you to know how to land huge gains trading some of world’s biggest Blue Chips – without have to actually buy the stock.
But today I’m changing all of that. Just go here and I’ll show you exactly how to trade this trade for exceptionally large returns. Anyone can do it.
Here’s something you probably don’t know, and it will really tick you off.
You probably do know the biggest banks in the world have commodities businesses.
Those lines of business might include trading desks (trading everything from gold and copper to kilowatts), transportation (pipelines, railcars and tankers) and storage (warehousing) operations, mining operations, as well as production, refining and raw and finished commodity distribution operations.
What you probably don’t know is that one of the “commodities” a few of these monster banks (Goldman Sachs and Deutsche Bank) trade is…are you ready?
Okay, I’ll tell… but you won’t believe it.
The Dangerous Stock Pile
I’m talking about uranium.
That’s uranium, as in “yellowcake,” the nuclear fuel ingredient. As in the stuff nuclear bombs are made from. Yeah… That’s uranium.
Right now Goldman Sachs and Deutsche Bank are sitting (not right on top of, though we could only wish) on some 5,511 tons of yellowcake.
It’s stockpiled in approved warehouses, of course. And safe and sound, of course, because these big banks are always the trustworthy fiduciaries of every business they diabolically manipulate, that is until they lose control of it.
What can you do with 5,500 tons of yellowcake? Why, you could fuel all China’s nuclear plants for a year, or 20 standard nuclear plants anywhere.
Or, you could build 200 nuclear bombs.
No one, least of all me, is accusing Goldman or Deutsche Bank of any wrongdoing when it comes to their nuclear ambitions.
But, I’m just going to put it out there.
And no, I’m not singling out Goldman (okay, maybe a little) because they’ve been caught manipulating a few things before. That list is long enough… and a study of how cloak and dagger they are when they’re doing God’s work (for their enormous bonuses) undermining governments and businesses, their own clients, and every other institution on Wall Street. It’s nothing short of scary.
Are we supposed to believe that Goldman and Deutsche Bank are above reproach?
In the face of all they’ve done, are we to believe they’re going to not only have their yellowcake but have us eat it too?
With their ability to manipulate governments, governments that they finance, and government officials they practically own, are we supposed to believe that Goldman Sachs isn’t going to sell yellowcake to the highest bidder to make the most money it can?
Not, of course, that they’d ever sell yellowcake to Iran, or Syria, or North Korea, or Sudan.
But other people would. And since Goldman and other giant, all-powerful quasi-nation state banks own the trading channels, transportation and warehouse facilities and can daisy-chain any commodity through any underground railroad they want, are we sure that the highest bidder trading with Goldman or Deutsche Bank isn’t going to deliver their yellowcake to any of our enemies?
This has gone too, too far. The big banks are dangerous oligopolies. God help us if they aren’t broken up or effectively dismantled and reduced to good old fashioned lending businesses.
Or am I just a paranoid idiot?
In case you missed the kerfuffle last Friday, Blythe Masters, the 44 year- old, super-smart head of JPMorgan Chase’s commodities trading business, declined to sit on the CFTC’s Global Markets Committee advisory board.
This came as a big surprise.
After all, many of us following the CFTC presumed the brainy Blythe had already accepted the position after she showed up as a member of the advisory panel that is formulating the CFTC’s cross-border rules for the global derivatives market on the CFTC’s website.
While all this is certainly laughable… there’s another part of this story that is actually repulsive.
I’m talking about the man responsible for what happened last week and what a slimy, slippery regulator he has been. Worse, he’s now acting head of the CFTC.
It’s like letting a pedophile babysit your kids. It’s sickening.
Let me show you what I mean…
The Wolf Exposed
Before I get to the sordid details regarding CFTC acting chairman Mark Wetjen… let me tell you the backstory.
And that begins with Blythe Masters.
Masters is a true Master of the Universe because the English brainiac helped develop credit default swaps (CDS) back at the old venerable J.P. Morgan when she started there in 1991.
As a fascinating aside, Masters is credited with successfully pitching a massive CDS sale on behalf of Exxon to the European Bank of Reconstruction and Development (EBRD) when she was on the J.P. Morgan swaps team in 1994.
The 1989 Exxon Valdez’s spill was looking like it was going to cost the company at least $5 billion and they wanted an open line of credit from J.P. Morgan, their primary banker.
Back then, Basel rules required banks hold 8% of outstanding loans as a capital reserve against losses. That was a lot more than the investment and merchant bank could manage.
Blythe came up with the idea of an Exxon CDS, which would establish the line of credit and at the same time offload the loan to the EBRD. The net result was the bank essentially made the loan for its usual exorbitant fees and didn’t have to reserve a drop of its precious capital. That transaction ushered in the era of credit default swaps.
Now, I admire Masters for her early work as a brilliant innovator and disrupter (in every sense of that word), and laud her as a thinking-outside-the-box genius.
But Masters is also the same woman Vanity Fair rated number 65 – just behind Bernie Madoff – in their September 2009 “100 to Blame” piece on who was responsible for misdeeds on Wall Street and the global economic crisis.
Masters, who was named by Jamie Dimon to run JPM’s commodity businesses in 2006 and sits on the bank’s corporate and investment banking regulatory affairs committees, has also been accused of lying to regulators over the banks “alleged” manipulation of electricity markets in California and the Midwest.
Masters herself wasn’t charged with any wrongdoing, but the bank settled with the Federal Energy Regulatory Commission for $410 million back in July 2013 for their September 2010 to November 2012 jiggering of energy prices.
And what about Mark Wetjen?
He’s the once-garbage man, once-bartender and still-lawyer who for seven years was the top legislative aide to Senate Majority Leader Harry Reid. Barak Obama appointed Wetjen as a CFTC commissioner in October 2011 and he became the acting chairman of the CFTC on December 16, 2013.
Since his appointment to the CFTC, which oversees derivatives trading, Wetjen, with the backing of Wall Street lobbyists, has systematically and methodically worked to weaken proposed CFTC rules that would have made derivatives trading more transparent and safer… for the world.
From day one as a commissioner, Wetjen proposed several bank-friendly changes to planned derivatives rules.
He unapologetically delayed rules by refusing to commit to voting for them.
He has championed giving Wall Street additional time to comply with established Dodd-Frank rules.
And he recently weakened a critical rule that under Dodd-Frank required traders using new swap execution facilities (SEF) to get at least five quotes (to ensure openness and diversity in the derivatives market 95% dominated by the five biggest trading banks in the U.S.) down to two, which is only one more than they get now.
The Democrat chairman has become the key swing vote on the panel, threatening to side with Republicans and vote down any rules his masters don’t want.
Mark Wetjen is a wolf in the regulatory henhouse.
His invitation to Blythe Masters is indicative of who he is and, more importantly, to whom he panders. He wanted her on the committee looking at cross-border derivatives rules.
The as-yet unwritten cross-border regulations, which will determine if and how the CFTC can monitor derivatives trades performed overseas by firms with substantial business in the United States, are mandated by Dodd-Frank, which still remains 63% unwritten.
Wetjen doesn’t want cross-border rules; he wants the CFTC to issue “interpretative guidance,” with virtually no force of law.
He has pushed for “substituted compliance,” to let overseas affiliates follow foreign rules instead of the U.S. laws. In other words he wants to let banks “offshore” their trading away from CFTC oversight.
In the words of former CFTC Chairman Gary Gensler, “that would make 70 percent to 80 percent of all derivatives rules irrelevant.”
Can you see where this is going? If you have any kids, lock them up.
Tags: CFTC, JPMorgan Chase
Earlier this year, I made you a promise that I was going to bring big profit plays your way in 2014.
In fact, I started the New Year off with two that I thought were especially opportunistic.
They’re already paying off – one in a big way – so I thought an update was in order.
That’s why today, I’m not only going to tell you how we’ve done so far…
I’m going to show you how you can capitalize further… and turn these two plays into even fatter profits.
My Two Profit Plays Dissected
Back on Jan. 2, I suggested that you sell short SLM Corporation (NasdaqGS: SLM). On Jan. 14, I followed up by recommending that you go long on Annaly Capital Management, Inc. (NYSE: NLY).
Let’s take a look at SLM first.
Profit Play #1
When I suggested shorting SLM it was near its 52-week highs, somewhere above $26.00.
Today it traded as low as $21.86 and as I write this it’s about $22.30
So, with my “trader’s” hat on I see we made a good call. At $22.00 we’d be up about 15%.
I don’t know about you, but I don’t mind making 15% in a month’s time. If I can make that in 6 out of 12 months that’s a 90% gain. Even if I lose 10% on 6 trades over the year (costing me 60%), I’d still be up 30%, net.
Of course, that’s theoretical. But that’s how I think as a trader. And it’s how I’ve scored dozens of big gains during my career.
I’m not going to make 15% on every trade… and I’m not going to lose 10% on every trade. But if I limit my losses to only 10% on any trade and I have several 15% winners, some of which I may have the good fortune to let run and make more on, I’m going to do well.
So, if you’re happy making 15% in just over a month, think about taking your profit.
What are your alternatives? Well, let’s dig a little further.
When I look at the chart for SLM I see it should “base” or consolidate around $22.00. It could go higher quickly, in which case I’d be thinking two thoughts:
- Maybe I’ll just take my $2.00 a share profit if it gets back up to $24.00 or…
- The stock had a nice drop, which I anticipated, that’s good… But it could bounce right back to $26.00. So, maybe I’ll let the trade move and not worry if it gets back to $26 because I won’t have a loss. I was willing to take a 10% loss before, so I’ll leave it alone in the hope that over time I’ll be right; it will go down and I’ll make more money on the trade.
Those are the options – but here’s what I’d do.
First, I wouldn’t be too greedy and sit on it a long time. I might take a profit at $22 and see if it goes higher. Then I would be rooting for it to go higher so I could short it again at $26 – or higher. But since it is above $22 I might wait to see if it goes to $24, and get out there for a decent short-term gain.
Of course, what we want to see is the stock base around where it is now – near $22 – and not go to $24.00 and then head back down and break down through the $22 level, which would have become short-term support.
In a nutshell, that’s how I look at the SLM position.
Profit Play # 2
Now, the Annaly Capital Management (NYSE: NLY) position is a bit different.
We bought in around $10.30 and it’s at around $11 today. That’s about a 7% gain. That’s a good start. And we’re getting a huge dividend yield if we hold on. So at worst we hope the stock stays here and we collect dividend income.
But here’s the thing…
This stock isn’t going to stay where it is. The chart shows NLY having made something of a base, having consolidated somewhat around $10. On the upside, if it can stay above $11 for a time, it has a good chance of going to $12.00.
However, the backstory reason I liked NLY was because (going against the crowd) I thought interest rates were going to fall and not rise quickly.
This came to me from watching the turmoil in emerging markets and thinking there could be some more trouble ahead. I also felt there would be a “flight to quality,” meaning an investor move into U.S. treasuries, which would raise treasury prices and lower yields.
That’s exactly what happened.
So, we were right. But what’s going to happen next? Will emerging markets strengthen and will rates start to rise? That would put pressure on our NLY stock. As rates rise, NLY will start to slip a little. How do we think this one through?
I think the emerging markets mess isn’t going to get cleaned up quickly, so I’m comfortable right where we are now.
I don’t want to see NLY go back down to $10. But if it does I’ll live with it. On this position I’d sit with it until I have a 10% loss, or if it drops to $9.27. Some of that will be hopefully offset by some dividend payments, but not if it happens quickly.
On the upside, if NLY goes to $12.00, I’d raise my stop-loss level to $10.50 or maybe $11.00 and get out if it slips back. Then again I’d want it to stay above $12 or anywhere near there and collect my dividends. Or you could get out at $12 and book a nice 17% profit and look for another trade.
This is how I think.
Remember, these are trades, not investments. So, I think like a trader.
However, when it comes to any trade, it’s only a trade until I fall in love with it because it keeps going up for the right reasons. Then it becomes an investment and I keep raising my stops and will hold on (especially if I’m getting a nice fat dividend!) as long as I can… as long as I’m making money from the dividend and sitting on a good gain.
As far as shorts go, to me they are always just trades. I never look at shorts as an investment.
When stocks fall they tend to fall fast, usually a lot faster than when they go up. So, once I’ve made a nice profit on my short positions, I ring the register.
How nice is nice?
That depends on how fast the stock drops. And when it does drop I ask myself why did it (was I right or did something else happen?) and will it drop further?
To be more precise, a nice gain is 10% in a short trade. 15% and 20% and 25% is better. If I get a 20% to 25% gain in a month or less, I’ll take it or take half of the profit and put a stop on the remaining piece of the position 50% higher from where I took my bigger profit.
I’ve got over 32 years of professional trading experience, and I know a thing or two, or three.
In fact, if you like these kinds of trades, I have something really exciting coming to you soon. I’ll be taking a select group of readers under my wing and showing them exactly how to make massive gains on these kinds of trading opportunities.
Keep a lookout…
Tags: Profit Plays
You remember Fannie Mae and Freddie Mac don’t you?
They are the two infamous Government-Sponsored Enterprises (that’s mumbo-jumbo for private corporations that have the backing of taxpayers to bail them out when their greedy managers leverage them up like balloons to generate mega bonuses for themselves) that guarantee mortgages.
They guarantee mortgages so those debt obligations can be easily packaged into mortgage-backed securities and sold to investors who want the highest yield possible with the guarantee (wink, wink) that the U.S. government won’t let them default.
Well, those investors were right.
Back in September 2008, before the credit crisis hit a crescendo, when people were defaulting left and right on their mortgage payment, and the guarantees that Freddie and Fannie issued started kicking in, the twin towers of government-sponsored greed imploded, spectacularly.
They deserved everything that hit them – after all, Freddie and Fannie had leveraged themselves up by buying over a trillion dollars of the same crap they were guaranteeing – for the yield and safety, of course.
And yet, Uncle Sam (that’s us, the taxpayers) came to the rescue.
The government put the two into a “conservatorship.” That’s a legal status (make that concept) that lets someone (or an entity) take over control of the corporations, the way a guardian might be appointed by a judge to take over the affairs of a mental person.
For all intents and purposes, this conservatorship was a de facto “nationalization.” But of course we’re a democracy and couldn’t possibly call it that.
Over time, the government – as in the Treasury Department, as in you and I – lent the dynamic duo $190 billion to not sink into the sinkhole they created.
Okay, fast forward to today. Here’s where the story gets twice as ugly.
In fact, the latest news about Fannie Mae and Freddie Mac might even make you pop a jugular.
The Towering Infernos Burn Again
Yes, the towering infernos cooled off thanks to the bailout. But as soon as the housing market stabilized, they got really hot again.
Meaning they are making money. A lot of money.
In just the third quarter of 2013, the latest data available, Fannie Mae had net income (otherwise considered profit) of $8.7 billion and Freddie Mac had net income of $30.5 billion.
Over the past two years, the dashing duo bounced back enough to pay the Treasury Department about $190 billion in “dividends.”
That’s right, F&F have paid back what was needed to bail them out. They have to pay dividends because they are slaves of the Treasury. They still owe the $190 billion in principal, by the way.
And here’s where it all gets interesting…
Where’s that money going, going, gone? I did say to the Treasury, didn’t I?
To the Treasury it goes – to reduce the deficit, of course.
So, the snakes in Congress are hiding their profligate ways and the Obamarama administration is saying, “Look how we’ve reduced the deficit!”
Don’t you just love nationalization!
They should have nationalized, I mean put into conservatorship, all the Too Big To Fail (TBTF) banks that were insolvent and got bailed out.
As profitable as they all are now, the deficit would be a couple hundred billion dollars less.
But they didn’t because we’re a capitalist democracy, don’t you know.
Oh well, at least this socialist government and our Congress of mostly (but not all) liars, pimps, and panderers is having their regulators and the Justice Department (love you, Eric Holder… NOT!) extract mega settlements and fines from the TBTF banks for not being criminals (heavens, no) but being miscreants. And now we know that most of that money goes to the Treasury… to offset the deficit.
Of course this brings up a lot of issues.
Like what will happen to the reforms Congress is contemplating, as in reforming the two monsters into real private companies?
And what will happen if the two cash ATMs are protected for their deficit-reducing prowess and get into trouble again?
Think about this: Of all the money the two government-slave-entities made in 2013, $75 billion resulted from tax-deferred assets, or one-time tax reversals. $11 billion came from canceling out loan loss reserves. $10 billion came from one-time settlements with the TBTF banks they strong armed. And 60% of the remaining income in 2013 came from their retained investment portfolios, portfolios they are supposed to be reducing by 15% every year.
The bottom-line: Fannie and Freddie are pawns in our government’s “Hide- The-Deficit” game.
The money they made isn’t going to keep rolling off their profit presses. But as long as it keeps coming, they will be protected as productive slaves.
And when all the juice has been squeezed from them and they are emaciated, which will be right about the time the housing market falters and the country slips into the next recession, it will be too late to release them from bondage.
And we the taxpayers will have to come in again.
Same as it ever was…