Archive for January, 2015

It’s Not Time to Sell Everything – Yet

25 | By Shah Gilani

One of my favorite lines is “I’m not the kind of guy to say I told you so – but if I was, I’d sure be saying it now.”

As far as saying “I told you so,” back in the summer of 2008, in my “Friday Night Illumination” emails to my banker and trader friends, I screamed, “SELL EVERYTHING!”

People thought I was nuts. Literally, that I’d lost my mind. Sell everything – no one ever says that, ever.

But I said it, over and over. SELL EVERYTHING! It was an insanely bold call. At least that’s what everyone said to me after the fact.

It wasn’t a bold call. It was telegraphed. And I wasn’t the only one who read it right.

Now for the really bad news. It’s going to happen again. The time to sell everything is approaching. It’s not here yet.

And we’re not inching forward. Nor are we dashing.

We’re jogging.

Today I’m going to show you how it will not only be different – but also a lot worse…

Casino Capitalism

That’s because the rescuing armies this time – the U.S. Federal Reserve and the globe’s other central banks – are the ones going under. If that happens, we’re going to have a global depression of biblical proportions.

There is time to stop it. However, those central banks are stoking the locomotive’s furnace to the tune of “Old Charlie stole the handle, and the train, it won’t slow down.”

The crash is coming because central banks’ engineered low-to-no interest-rate policies grossly distort free markets. That makes true price discovery impossible, and front-running, financed by flimsy carry trades, has become a perpetual-motion trade.

If you don’t get that, don’t worry – you’re not alone. The central banks don’t get it, but they’re starting to. It’s not complicated at all. It is what it is. It’s about casino capitalism.

Here’s the game that’s being played, plain and simple. And here’s how it’s going to end.

Central banks artificially lowered interest rates, which causes market distortions, which leads banks and households to leverage themselves up, up and away. When the housing market and mortgage securities imploded, the pain spread around the world.

But the pain wasn’t all about mortgages.

It was all about “credit” in the system and how easy credit, courtesy of low interest rates, facilitated cheap financing of real estate and heavily margined and leveraged securities positions. Easy credit also aided and abetted counterparties wagering trillions of dollars on bilateral derivatives contracts that they folded up and tossed about like paper airplanes.

Confidence in the system collapsed when credit evaporated and players crapped out.

The credit crisis was a global phenomenon. That’s because credit stems from banks. Banks everywhere were in trouble. By trouble, I mean insolvent. Central banks had to rescue them.

That’s where “stimulus” came in. Zero interest rates don’t matter if you’re a bank with zero money to lend. So what if you can borrow from the Fed at zero interest? If there’s no one borrowing from you and you can’t make money by lending, you’re toast.

That’s where quantitative easing came in. QE was a desperate measure. Plain and simple, if you’re a central bank and your banks don’t have any money and you work for them, you find a way to give them money so they don’t have to close down for good.

The Fed and other central banks (using different names, though the European Central Bank just went ahead and called its latest $1 trillion giveaway QE) printed money and steered it directly onto banks’ balance sheets so they wouldn’t be insolvent.

Stay with me here, because this is the part that will blow your mind if you don’t know it.

This Year’s Front-Runners

The Fed and the world’s other central policymakers manage this balance-sheet bloating trick by buying bonds from banks. But there’s no difference inside the bank if they have bonds (which are worth something) on their balance sheets that they sell for cash. It’s just a switch. There’s no addition to the balance sheet.

What really happens is that banks (I’m talking about big banks, the too-big-to-fail banks that all failed in the credit crisis) buy government bonds from governments that always have to roll over their debts. Sure, they pay full price for the bonds, but they don’t put up the full amount. They buy them on margin.

It’s done with clicks on electronic ledgers, so don’t sweat the mechanics. Anyway, central banks then buy those bonds from the banks and pay in full (credit them in full on another electronic ledger). And presto!

The Fed stuffed its big banks with more than $4 trillion. That’s enough to make them not only solvent but very profitable again. And the folks in the government? They love it because they don’t have to worry about selling their debt. They’ve got a readymade syndicate to take all they have to offer – at very low rates mind you!

Bank balance-sheet bloating has been going on around the world.

And, as if not a single lesson was learned from the last credit crisis, speculators have leveraged up their “risk-on” positions because they can finance them for next to nothing.

Almost all of the big bets being made, in the tens of trillions of dollars, are front-running bets. Front-running central banks, that is.

Take any example you like, the front-running trade works the same everywhere.

Let’s take Europe, because it’s the latest example of massive front-running.

Hedge funds, institutional traders, mutual funds and banks all bought the sovereign debts of beleaguered European Union member countries back in 2012. They were all paying big interest-rate spreads over better quality bonds, like U.S. Treasuries.

But when ECB President Mario Draghi famously said, “Whatever it takes,” (to support the euro, the EU and its banks), the front-running began.

Buyers paid higher and higher prices for government bonds, driving their yields down. As of this morning, the 10-year yield on German Bunds is 0.34%; 0.57% for French bonds; 1.46% for Spanish ones; and 1.62% in Italy. And the Swiss 10-year yield is negative 0.08%.

Why so low? Because, just like in the United States, bond buyers (speculators) knew the central bank would have to come and buy their inventory from them. The ECB just announced a 1 trillion euro QE program. So, the speculators who drove up bond prices and drove down yields to insanely low levels will make a fortune selling their stockpiled government bonds to the ECB at the bloated prices they drove them up to.

That’s front-running.

But, Houston, we have a problem.

Ghosts in the System

Somewhere, probably in Europe, maybe in Japan, maybe in Russia, banks are going to fail, probably because they loaned too much money to beleaguered oil and gas companies. Or worse, a European crisis could erupt from a Greek implosion and contagion – and then what?

After everything central banks have done to save the credit system, in the end they leveraged it up even higher with even lower interest rates.

A break anywhere in the credit system could cause contagion. If the central banks have done all they could do and are themselves leveraged well beyond being insolvent (none of them have real capital – they’re all ghost lenders), confidence in the system will evaporate.

That’s when it will be time to sell everything.

It could happen. It’s going to happen.

Only by immediately addressing the structural problems facing indebted countries and still shaky banks can we veer off in another direction. But the likelihood of that happening is precisely between slim and none.

I’m not saying I told you so.

If You Picked Up a Cheap Mortgage Today, Thank a Taxpayer

5 | By Shah Gilani

It’s Monday – and if you’re looking for a cheap mortgage to buy a new home, today should be a good day.

That’s because today the 50-basis point premium cut from the Federal Housing Administration (FHA) went into effect.

So with practically nothing down, unless you consider 3.5% down something, you can get a cheap loan through the FHA, one of those government agencies that was supposed to be getting out of that business.

But here’s a tip. Don’t be in a rush today – or tomorrow, for that matter.

Here’s why…

Taxpayer-Sponsored Mortgages

That’s because Fannie Mae and Freddie Mac, the two giant government-sponsored enterprises (GSEs) responsible for magnifying the credit crisis and mortgage meltdown, are going to try and do the FHA one better.

Without getting into the mechanics of how to get a cheap mortgage with the government’s helping hand, my tip is to wait and see what Fannie and Freddie are going to do for you.

You can’t go directly to either of them, but your friendly local mortgage broker or crack bank mortgage dealer will set your “desktop” Fannie or Freddie virtually auto-approved (if it makes it past the desktop) application in motion.

Basically, take a look at them all. Got it? You can play the government’s mortgage genies off each other to get the lowest mortgage possible.

Don’t bother wasting your time going to “private” lenders that don’t rinse your application through a government hose, because they can’t compete with organized crime at the government level.

I’m going to keep this short, really short, because No. 1) it’s late (I’m late on account of having to go to a bunch of stores and stand in long lines to stock up for the big storm heading my way). And No. 2) the same old No. 2 we all know about is still going on.

So this won’t take long to explain.

After the financial crisis of 2007-’08, Fannie and Freddie were insolvent and the government bailed them out.

The FHA played a slightly different game, so while it was in trouble, it could still be propped up to keep mortgage money flowing.

Nothing’s changed.

The whole No. 2 talk about getting the government (taxpayers) out of the mortgage business to “normalize” the industry once and for all – that never happened. It never was going to happen.

Big banks, the ones with all the money, weren’t going to lend out mortgage money, because they were making too much risk-free money playing the quantitative-easing (QE) game with the U.S. Federal Reserve.

So the government said, “We have to do what we can. We have to lend if the banks aren’t lending.”

And so, F&F are F-ing big as ever, and the FHA is the biggest it’s ever been. And there is no real “private” mortgage money to speak of.

That’s it.

I have to go now and help some friends finish putting a tarp on their roof. They probably won’t be staying over here when the thing blows off (the winds are already blowing gusts up to 34 mph, heading to 50+ mph).

But I just wanted to let you know that if you don’t hear from me, because my house got blown away or the roof caves in from three feet of snow, don’t worry.

It’s a great time to buy a house at inflated prices (who says there’s no inflation?) and pay for it with a government-wrung loan.

Wrung from you taxpayers, so thank you.

ECB and EU LTRO and QE for Dummies: Or, Make These Trades

6 | By Shah Gilani

Pssst! Do you want to make some money trading some initials? Real easy money?

For real. I just made my subscribers 382% trading these initials. And we’re not done. After closing out our 382% gain, we’re in the same trade again, and we’re up 180% in just a few weeks – and still going.

We’re also in a conservative trade, trading the same initials mind you, and we’re up 41% there.

The initials are EUO. EUO is an ETF (exchange-traded fund).

As soon as you read this “ECB and EU LTRO and QE for Dummies” explanation, which would take even a dummy about two minutes to read and understand, I’ll share both of these trades.

Then, you’ll be making some real money…

The World’s Biggest Economic Experiment

The ECB is the European Central Bank. It’s Europe’s central bank, just like the U.S. Federal Reserve is the central bank of the United States.

The EU is the European Union. The EU is a confederation of 28 European countries, a sort of wannabe United States of Europe. Of the 28 countries in the EU, 19 of them exchanged their sovereign currencies for the euro, the EU’s single currency. The other nine EU member countries, though they gladly accept euros, kept their old currencies.

After the credit crisis of 2008 and the Great Recession, which devastated Europe as much as the United States, the EU and the ECB followed the U.S. government and Fed’s “stimulus” plan and worked to drive interest rates down.

The ECB embarked on an LTRO program, longer-term refinancing operations. But its “stimulus” program wasn’t nearly as big as what the Fed did in the United States.

While the Fed spent about $4 trillion buying U.S. Treasuries and agency mortgage-backed securities (“agency” means that those mortgage-backed securities are guaranteed by some federal agency, like Fannie Mae or Freddie Mac), the ECB spent less than half that amount on asset-backed securities and covered bonds from European banks.

The Fed’s stimulus programs, which happened in three stages – the first in November 2008, the second in 2010 and the third in 2012 – became known as QE1, QE2 and QE3. QE stands for quantitative easing.

When the Fed drove down interest rates to essentially zero in 2008, and growth in the economy wasn’t stimulated, it began the experiment we now know as QE.

Quantitative easing simply means the central bank has driven interest rates as low as it can and the central bank is out of old-fashioned ammo. So, to try and get banks to lend more to stimulate consumption and production, the central bank buys assets from banks. By buying assets that banks are sitting on – meaning U.S Treasuries the banks stockpile and mortgage-backed securities the banks invested in (to earn interest) – the trillions of dollars the Fed pays banks to buy their inventoried bonds is supposed to make the banks flush with cash that they supposedly will lend out, stimulating consumption and growth.

At least that’s the idea.

The jury is still out here in the United States as to whether QE was just a boon to the big banks who benefited by it, whether or not it artificially pumped up “risk assets” like stocks, or whether or not it exacerbated income inequality and wealth disparity by enriching those who benefited by owning stocks and real estate “risk assets” while middle-income incomes stagnated and the ranks of the poor grew.

Nonetheless, the U.S. economy is growing while Europe faces its third recession since 2008. U.S. banks are in better shape than their European counterparts. And in spite of everyone’s deficits and government debts increasing, the United States is managing to slow the rate of its debt growth while European nations are piling on more and more debt.

Viewing all that, the ECB, in consultation with its oversight body, the European Commission, decided today to embark on its own version of quantitative easing.

Quantitative easing in Europe is vastly different from the ECB’s former LTRO programs. QE means for the first time the ECB isn’t just going to buy asset-backed securities and covered bonds (essentially those are packaged corporate loans and bank loans) – the ECB is going to buy government debt obligations from member nations in the EU.

That’s historic.

Make These Trades

Okay, here’s how to make money on Europe’s new QE experiment.

To grow its way out of recession, Europe has to export more goods and services. To make its exports cheaper to buy, Europe has to devalue its currency. The ECB is printing money to buy member nations’ government bonds, and asset-backed securities (ABS) create more money in the system. More money in the system is supposed to devalue the euro.

In other words, the ECB is doing QE to devalue the euro.

On the other side of it all, whether or not this experiment creates growth, remains the fact that if it doesn’t work, if the ECB can’t create inflation (which it won’t be able to do) and growth, and faith in the European Union experiment itself comes into question, the euro could be doomed.

In my trading services, Capital Wave Forecast and Short-Side Fortunes (shameless plug, YES!), we’ve been betting, correctly, that the euro will fall against the U.S. dollar.

We’ve been doing that by betting on EUO. EUO is the ProShares UltraShort Euro (NYSE ARCA: EUO), a leveraged ETF that goes up in price if the euro falls in value relative to the U.S. dollar. And it has been falling.

We bought EUO some time ago at an average price of $17.165. It’s now up to $24.25 (it might be higher or lower by the time you read this), so we’re up 41.275% on that trade.

We also bought May $26 call options on EUO. We paid 25 cents for them. They’re now trading at about 70 cents, so we’re up about 180% and counting.

We previously bought January 2015 $21 calls on EUO last year for 28 cents and sold them before expiration for $1.35. So we made a tidy 382% there.

I’m betting that the ECB’s QE will be a bust one way or another for the euro.

I hope you make these trades – and I hope you also make a HALOM… a helluva a lot of money.

Editor’s Note: Shah’s subscribers have a lot more gains like this coming their way. In fact, he’s just uncovered one of the biggest capital waves in history – and it’s hitting soon. Shah has put together a full breakdown for you on how to take advantage of it, and he’ll be sending that report out next week. Watch for it.

With Yesterday’s Surge, Is Today the Day to Buy Netflix?

0 | By Wall Street Insights and Indictments Staff

Netflix Inc. (Nasdaq: NFLX) shares soared nearly 18% yesterday on an earnings boost. The streaming media service handily beat Wall Street‘s per-share earnings estimate of 44 cents, posting an EPS of 72 cents.

But investors tempted to buy Netflix stock need to be cautious. On Fox Business yesterday, Shah warned viewers to watch Netflix’s volatility.

To see whether Shah likes Netflix right now, check out his TV appearance below.

 



This Washington Clown Can’t Juggle

3 | By Shah Gilani

Policing Wall Street is hard work.

The U.S. Securities and Exchange Commission, the undisputed top cop on the Street beat, has its work cut out for it. The enforcers at the SEC have to juggle what and whom they go after because, after all, they don’t have unlimited resources.

We all get that.

What I don’t get is why they drop the ball on some of the biggest schemes staring them right in the face.

Take “fair and orderly” markets for example.

They’re not always orderly, and the truth is they aren’t fair.

The folks at the SEC know this. So why have they taken so long to do so little about it?

They say they’re making progress.

Here’s why you can’t believe that…

Nothing but a Limp Reprimand

Last week, with some fanfare because it was the largest fine in such a case, the SEC came down on UBS Group AG (NYSE: UBS) for not following the rules and regulations that make markets fair and orderly – and also for not being honest to its clients.

The record fine was all of $14.4 million (not billion). Maybe that’s why you didn’t hear about it. It wasn’t newsworthy.

The SEC slapped UBS, which runs the second-largest dark pool in the country, on the wrist for violations that occurred from 2008 through 2012. During that time, UBS’s dark pool offered select market-makers and high-frequency-trading desks illegal order-types. Additionally, UBS broke promises to its own clients, who were told their dark-pool trading data would be strictly confidential.

Because the minimum increment stocks can trade is 1 cent, it is illegal to submit orders in increments of less than a penny. But that’s what UBS allowed its favored clients to do. Not everyone mind you, just select market-makers and HFT traders. That’s illegal because bidding or offering at less than a penny moves those orders up in line ahead of pending orders by others who abide by the rules.

UBS also let 103 employees access confidential trading data that dark-pool clients were promised would be strictly confidential. What’s most galling about this breach is that exposed trading data could have been used by UBS’s own trading desks to trade against its dark-pool clients.

I’m not the kind of guy to say UBS did that. But if I was, I’d sure be saying it now.

Not a lot about dark pools and high-frequency trading is newsworthy as far as the mainstream media is concerned. But it is newsworthy when it comes to trading, to exchanges, to the fabric of the capital markets.

According to a Bloomberg article about the UBS fine, “The proliferation of exchanges and dark pools has also been defended by some at the agency. Gregg Berman, the Princeton-trained physicist who runs the SEC’s analytics office, said last year that the desires of investors and investment managers entails ‘an unavoidable increase in the complexity of our markets.'”

Complexity? Really? Coming from the SEC, that’s shamefully absurd.

Markets are not complex. It’s the quote-stuffing, end-arounds and front-running that the SEC has allowed that’s complex.

What’s complex is how and why the SEC ever allowed the trading shops, market-makers, banks and brokers it sanctifies and coddles to cheat the public and hijack the exchanges and capital markets under its watch.

Remember, these are the entities the SEC is supposed to regulate.

It’s not “regulatory capture.” It’s collusion.

If the SEC regulators weren’t in bed with the harlots who screw us all, they wouldn’t be juggling all these balls – and failing. They’d be displaying a pair of brass… handcuffs… and locking these crooks up.

A $14.4 million fine? UBS probably makes that every half-hour on its HFT desk.

Related Reports:

Is Now the Time to Buy?

0 | By Shah Gilani

Shah talked about the market sell-off with Stuart Varney on Fox Business earlier this week. After discussing whether now is the time to be buying stocks, he took a look at several specific companies. Tesla Motors Inc. (Nasdaq: TSLA), Alibaba Group Holding Ltd. (NYSE: BABA) and Chipotle Mexican Grill Inc. (NYSE: CMG): Which are buys and which are scary? Shah lets us know. Click here.

 



D.C.’s New Bosses Start to Pay Back Wall Street

21 | By Shah Gilani

Rattlesnakes rattle their tails as a warning. It’s their way of saying, “I’m ready to attack you to defend my ground,” which really means defend myself.

All politicians are snakes. And some of them are rattlesnakes – but only if they have to be.

Most of them would prefer to silently slither in and out of their offices defending their self-interests. But sometimes a politician has to rattle his tail because his constituents’ interests are threatened – meaning his campaign contributions (money) and votes are threatened.

Republicans have been doing a lot of rattling lately, since they are now the majority species in the deep, dark den known as Congress.

Me, I used to be a staunch Republican. I still adhere to the basic Republican principles of smaller government, lower taxes and a “constructionist” view of the U.S. Constitution, not an interpretive one.

But I’m disgusted with the Rattlesnake Republicans who are pandering to crony capitalists. Their greedy, pro-super-wealthy and big-business agenda isn’t about the good of the country, but about lining their own pockets and becoming super-wealthy themselves.

And here’s how they’ve been lining their pockets most recently…

Rattlesnake Shake

Yesterday, the House of Republicans (oops, I meant House of Representatives) and greedy like-minded Democrats passed the Promoting Job Creation and Reducing Small Business Burden Act, by a vote of 271 to 154. According to Open Congress, 242 Republicans and 29 Democrats voted aye, while 1 Republican and 153 Dems voted nay.

There’s a lot of rubbish in the act. But the thing that riles me most is a provision that gives big banks an additional two years to comply with a slice of the Volcker Rule, an integral part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That slice says banks have to shed their collateralized loan obligation assets by July 2017.

That’s plenty of time. So why an extension to July 2019?

That’s the sound of a rattle. It’s the Rattlesnake Republicans and their Democratic buddies warning they’re going to defang not only the Volcker Rule, but as much of Dodd-Frank as they can.

What are collateralized loan obligations (CLOs)?

Banks and other lending outfits, like private equity shops, make loans – a lot of them leveraged loans and high-yield loans – to medium and large companies for all kinds of reasons.

Lately, these outfits have been making a lot of these loans to highly indebted companies that may have been taken over or spun back out as public companies. These companies then borrow huge amounts to pay fees to their private equity masters or to pay dividends to their shareholders.

Those loans are “securitized,” or packaged, like mortgage-backed securities, and “collateralized,” or “tranched,” meaning cut up into different layers with different collateral attached and different risks associated and different yields. That’s similar to the collateralized mortgage obligations (CMO) that blew up so spectacularly in 2008.

The tranches get sold to institutional investors, mutual funds, ETFs and banks. Banks buy CLO slices because they are loan assets, and, after all, banks are in the loan business.

CLOs are assets because they are securities that represent loans, and loans are assets on banks’ balance sheets. Forget that they can be toxic. Did I say that they are assets?

There is no reason to extend by two years the time banks need to shed these potentially toxic assets.

Just like there is no reason the same House of Reprehensibles passed a rule change as its first order of business in the 114th Congress.

That rule change requires all big budget legislative initiatives – think huge tax cuts for the 1% and big businesses – to be “dynamically scored.”

Dynamically scored? That’s a smoke-and-mirrors trick that says a budget cut (tax cut) isn’t necessarily going to be a revenue cut.

If you score the victories that the rich and big businesses get (they don’t say that – they say, if you score what the middle class gets) when tax savings from the rich and big businesses trickle down to the rest of Americans, they’re actually going to be better off, get better jobs and pay more taxes

And so, a tax cut applied just so can be a revenue generator.

Who knew?

They’re all snakes.

What we need is a milking station where the vipers in Congress can be brought out in public and milked of their venom.

What’s a milking station? It’s a voting booth.

JPMorgan Is the Latest Target on Goldman Sachs’ “Hit List”

13 | By Shah Gilani

This may be old news, but as far as history goes, a lot of us forget it.

And you know what happens then – we’re doomed to repeat it.

What I like about people forgetting history are the trading and investing opportunities that pop up when I can see the past coming back to haunt us before others do.

So, today I’m going to share the latest twist on some old news. If you want to make some money on it, stay tuned.

I’ll show you what I’m going to do, and I’ll let you know when I start doing it…

Bear Hunting

Here’s the history you may have forgotten.

The Too Big to Fail (TBTF) banks were all going strong in 2007. Then, in 2008, all of a sudden they weren’t.

In 2007, Bear Stearns was the seventh-largest global investment bank and securities trading company in the world. In July 2007, two of its hedge funds began having lots of trouble and ended up sinking like stones in the vast mortgage-pool black hole they were betting heavily on.

While a lot of people think that was the beginning of the end for Bear, it didn’t have to be.

Fast-forward to March 14, 2008. Bear Stearns was, by most accounts and legitimate accounting methods, totally insolvent. But the U.S. Federal Reserve agreed on that day to provide Bear a 28-day, $25 billion loan to get its act together.

The very next day the folks at the New York Fed said, “Never mind, we’re not helping you.” And one day after that, the New York Fed essentially funded with $29 billion JPMorgan Chase & Co. (NYSE: JPM)’s $2 a share buyout of Bear. For its part, JPM put up a whopping $1 billion and got all kinds of protection against any losses.

As far as TBTF goes, Bear’s stock was trading at $172 in January 2007 and at $93 in February 2008.

And a month later, JPMorgan Chase pays $2/share to buy all of Bear’s assets?

To be fair, a subsequent class-action suit forced JPM to raise its price to $10/share. Not out of generosity, but to minimize shareholder suits in the future.

The Second Victim

Fast-forward again to the fall of 2008, and like déjà vu all over again, Lehman Brothers followed Bear Stearns into the toilet. Only this time nobody was there to pick it up.

The fourth-largest investment bank in the United States died an ugly death.

The Lehman story is even more interesting than the Bear story. But this isn’t about stories.

The truth is that both Bear and Lehman were systematically exterminated.

They were both gang-tackled (I’d like to use another phrase here, but my publisher won’t let me) by their competitors to eliminate them from the shark tank that was getting crowded by them getting too big to compete easily against.

Who led this band of murderers? Goldman Sachs Group Inc. (NYSE: GS), of course.

There’s so much information out in the public domain that there’s no refuting it. The only thing that isn’t out there is a book that brings all the pieces together and tells the whole truth.

Former Goldman men were running the New York Federal Reserve and the U.S. Treasury. And a former Goldman man was guiding JPMorgan Chase’s backroom deals.

Now, Goldman is at it again.

Two Down…

This time Goldman is going after JPMorgan Chase. Its old partner in crime has become too big to compete against, and Goldman wants JPM dismantled.

JPMorgan Chase is too big and too strong to kill. So Goldman has jumped on a bandwagon of analysts who, for about a month now, have been suggesting JPMorgan would be a better deal for shareholders if it was broken up.

Goldman being Goldman, it waited for a couple of others to start singing the breakup song before it raised its voice above theirs. About a month ago, highly respected CLSA bank analyst Mike Mayo came out in a client report calling for JPMorgan Chase to be broken up to rid itself of the “conglomerate discount” its stock price is suffering from.

Then a Wells Fargo & Co. (NYSE: WFC) analyst said JPM might need as much as $45 billion a year in new capital, for several years, to meet the new “capital surcharge” rules all the big banks are facing.

But it was Goldman bank analyst Richard Ramsden who caught the most attention when he said last week that it’s time to break up JPMorgan Chase.

I’m not saying it’s time to short JPMorgan Chase because it’s now in trouble like Bear and Lehman were back in the late 2000s. JPM is not in trouble.

But JPM is trouble for Goldman.

Goldman bought credit default swaps on Bear and Lehman and shorted their stocks mercilessly. Goldman drove them into insolvency and out of business.

Two down and two to go.

Now we know Goldman wants to take out JPM, and no doubt GS will eventually attack Morgan Stanley (NYSE: MS).

That’s going to be a rumble in the jungle, and it’s going to be fun to watch.

Goldman Sachs is simply the best at what it does. Everything it does – good and evil.

I’m going to watch how Goldman’s new trade setup pans out. Because it’s a trade, you know.

It’s about Goldman Sachs making money while eliminating a competitor. That’s how it trades.

I’ll figure out the timing and how we can join in. And then I’ll show you how we’re going to play it.

Why Now Is the Time to Let These Big-Name Stocks Go

1 | By Shah Gilani

No one wants a broken toy. Shah talked with Stuart Varney on Fox Business about just how low some major market darlings are about to plummet – Tesla Motors Inc. (Nasdaq: TSLA), Amazon.com, Inc. (Nasdaq: AMZN), Google Inc. (Nasdaq: GOOG) and Netflix Inc. (Nasdaq: NFLX) among them.

And that’s not all. We should expect a rocky first quarter ahead, Shah says, no matter what stocks we may hold.

 


The Masters of the Universe Are Also Universal Manipulators

20 | By Shah Gilani

Dear Wall Street Insights & Indictments Reader,

Just look at the market today, any market, anywhere in the world. They’re all higher.

That’s what happens when the true Masters of the Universe, the puppet masters at the U.S. Federal Reserve, twiddle the strings to manipulate markets for their purposes.

What are those “purposes” and how much “control” does the Fed really have?

The short answers to those questions will sicken and frighten you…

Market Eruption

But first, a word about surging equity markets.

U.S. markets leaped higher yesterday propelled by molten lava (heated by the Fed), which blew the top off the cone of equity malaise capping stocks in the first days of 2015.

Asian markets took notice this morning and immediately joined the party. Not to be outdone – and without a doubt the guests of honor who were being liquored up in the process – European stock markets popped their own corks and soared higher. So, when U.S. markets opened a few hours later, it was one for all and all for reaching for the moon.

Grab your glass and get your boogie on – it’s a world party!

The molten lava forcing the blow-off top in equities bubbled out of the Fed’s December 16-17, 2014, meeting minutes, which were released yesterday morning.

In a highly unusual public pronouncement (sure, they were minutes of the Fed’s private meetings, but they are made public, so they were public pronouncements), the Masters of Manipulation warned they were worried about slow economic growth outside the United States.

Specifically, the Fed said it was worried “foreign policy responses [to slowing growth] were insufficient.” That’s “Fedspeak,” over a loudspeaker screaming to their counterparts at every other central bank on the planet, for “PRINT MORE MONEY, YOU IDIOTS.”

But it’s not slowing growth the Fed is really worried about. It’s how artificially pumped-up equity markets (courtesy of the trillions of dollars of already printed money, aka stimulus or, more colloquially, quantitative easing) will react if the free-money ride slows down or stops.

How do we know that’s what the Fed is afraid of? Because it said so. The Fed minutes warned financial markets are “importantly influenced by concerns about prospects for foreign economic growth and by associated expectations of monetary policy actions in Europe and Japan.”

That means frenetic equity markets will crash if they don’t get more cocaine up their snouts.

That’s how Masters of the Universe pump up stock markets – by masterly manipulation.

So, what is their “purpose” and how much “control” does the Fed really have?

Unless your existence in the equity bubble has left you deaf, the Fed has for years openly articulated a “wealth-effect” policy. It wants to pump up stock prices to make us all feel wealthier. Some of us are wealthier, if we own a lot of stocks. Most of us don’t own enough stocks or any stocks, so we only feel the rich getting richer.

But, whatever, that’s the wealth effect.

As long as equity prices are rising, banks’ equity capital is worth more and they make more money in rising equity markets from investment banking, mergers and acquisitions (M&A), and trading.

Of course, the juice for all that activity comes from low interest rates.

At the same time, the Fed is carrying the deficit-ridden U.S. government by buying its debt.

That’s the purpose of zero interest rate policies (ZIRP) – to pump up equities, enrich big banks and monetize government debt.

That’s the purpose of central bank “stimulus” all over the world.

Control Fantasy

The problem is in the “control” mechanism.

If the Fed loses control of U.S. equity markets, if other central banks lose control of their equity markets, it’s game over. The wealth effect will disappear, and banks will collapse.

So, here’s what the Fed intended by incorporating the language it did in its most recent minutes, for the world to read.

The Fed warned other central banks to keep the free-money hoses turned on in order to force equity markets higher. Markets read that and rallied, because the Fed is the Master of the Masters of the Universe and just proved to its counterparts that stimulus is the way forward.

However, the last word on “control” goes to the markets themselves. Try as central banks might, as big as they are, as much capital as they pretend they have to spray on stocks, they are not anywhere near as big as the markets.

Control is a fantasy.

Of course, equity markets are higher. They’re all Pavlov’s dogs.

But one day, the atavistic tendencies of markets, meaning their animal nature, will prove the distorted headline “Man Bites Dog” was a misprint.