Sandbags and Santa Claus

0 | By Shah Gilani

Dear Reader,

Far from having my holiday spirits uplifted, I’m increasingly glum (about the markets, but not about life, liberty, and the pursuit of happiness) on account of the lack of any good cheer coming out of…well, anywhere.

Take Europe, for example. You know, Europe, as in the European Union. As in that region of the world that has always gotten along, happily sharing each other’s cultures, cuisines, and shrapnel wounds from their exploding sovereign debts, courtesy of a common currency that affords cheap financing for budget bludgeoning.

There’s no good cheer over there.

Didn’t anybody hear Christine Lagarde (formerly one Europe’s own when she was running finances for France, but now runs around with whips and chains as the high-heeled dominatrix of the IMF)? Last week she said that if we don’t all work together our situation will be similar to the 1930s.

She wasn’t just talking to the Europeans. She was warning world leaders and central bankers.

Good thing Fed Chairman Ben Bernanke got the message. He told lawmakers last week that they have “no further plans to aid European banks.”

So much for holiday spirit.

But, I think the Beard is just too modest; he wants to be a secret Santa.

In fact, there’s really a lot of gift-giving going on over in Europe. If you look closely you’ll see that stockings and sacks are being filled, and the Fed was the first to contribute.

But (frighteningly, if not ominously), if you look closer you’ll see those stockings and sacks aren’t being filled with presents, they’re being filled with sand. They’re sandbags.

Sandbags? Yes, sandbags, as in the last ditch effort to save towns from catastrophic flooding when the big dam breaks.

Here’s my supposition; it’s as good as anybody else’s out there because no-one really knows what’s happening.

The dam is going to break. Greece will be kicked out of the common currency, or maybe it will quit. Portugal will be next on the chopping block.

The dominoes are lined up. If they start falling from mortal wounds inflicted on them by bond vigilantes, there will be a line drawn in the sand (yeah, I know, there’s a line in the sand now, it’s called Greece), around Italy. That’s where coalition forces will eventually convene to save the rest of the Union, and the world.

It’s about those sandbags being filled. The Fed has offered unlimited-term dollar swap deals at Black Friday prices. The ECB is stuffing their bags with three-year term loans to banks and accepting crap collateral.

Did you know that they’re now accepting bank loans (that’s right, loans that European banks have made to all kinds of borrowers, including each other) as eligible collateral? Nah, there’s no panic over there, everything is fine.

There are lots of other sandbags being filled because everyone is afraid that the dam could continue to spring leaks. If all these sandbags are filled and at the ready, well, there’s a sense that the town will be saved.

Only… what if they were being filled because the dam was going to be allowed to fail?

There’s been ample time to do lots of things to prevent the implosion of the European Union. So, why are we still here? Why are European leaders snubbing each other? Why are there so many mixed messages? Why hasn’t the ECB been given the power and the will to reinforce the dam?

Maybe because Europe is Europe, and all that getting along is just long and wrong.

I am not long Europe and definitely not long the euro. I’ve been short the euro for over a year. Subscribers to my trading services are long (“long” means we bought) the ProShares Ultra Short Euro (NYSEArca:EUO), and we’re sticking with that trade. The euro broke $1.30 last week; it could be headed for its own line in the sand, which is $1.20.

Personally, I’ll be adding to this position if it goes against me. I’d be adding all the way back to $1.40, if the euro ever gets there again. I’d stop myself out if there’s some crazy good news out of Europe and the euro goes to $1.45.

As for Good Cheer Elsewhere…

Riots in Cairo over continued military power on the heels of the Arab Spring, courtesy of Twitter-like communication to band together and take to the streets. Not good news.

Protests in Moscow (and a big one planned for Christmas Eve – again, likely driven by social media) over Mr. Putin’s military-backed hold on power, and patently fraudulent elections. Not good news.

Unwelcome and sometimes violent get-togethers in China over state policies in the hinterlands, and close to some big cities. Not good news.

At least the Chinese authorities are smart. They just clamped-down on pesky twitteresque twits communicating their grievances between a few hundred million of their kind, by forcing any bloggers to register their true identities.

Why didn’t anybody else think of that? The penalty for not doing so, well, they didn’t say, but there’s no reason it shouldn’t be the death penalty. After all China is a communist democracy, you know.

Oh, and as far as them controlling the media and the mediums of communication, maybe they should have kept it a little quieter that, in October, 34 out of 70 mainland cities witnessed new-home sales decline, while only three cities saw price declines last January. About that “harmful information” getting out… Not good news.

Is there hope? Is Santa coming?

Chanukah starts on Tuesday; let’s hope that hopeful festival starts a beautiful turnaround that takes us through Christmas, into the New Year, and onward.

But, then again, I never got that pony I wanted when I was five, either.

The SEC Takes on Fannie and Freddie

Speaking of ponies, and four-legged animals that resemble ponies (I’m thinking about the real asses involved in this saga), how about the S.E.C. (they’re asses too, but in this instance they’re the ponies) kicking the butts of some former executives at Fannie Mae and Freddie Mac.


If they pull this off, then there really is a Santa Claus, and I will yell from the chimney tops, I believe, I believe!

Because this is so amazingly huge I’m going to dedicate Thursday’s indictments angle to this whole story, and – you’ll be happy to know – it will include a surprise guest appearance of one of the biggest asses in America, who is not only a big part of the Fannie and Freddie saga, but just happens to be someone smiling at you from your TV screen all the time now.

Can you figure out who I’m talking about? If you like this guy, and some of you may, surprise, I’m going to upset your little apple cart. But, don’t hate me for that.

Sorry, I always digress too much. Back to the Freddie and Fannie primer.

The SEC has accused six former executives from the two government-sponsored eyesores of “knowingly misleading investors” by not disclosing the risks the companies were taking on by loading up on subprime mortgages just as the market was weakening.

The beauty of these charges is that if the SEC prevails (holy cow, if they do, America will be back on track to becoming America again), not only will Americans end up prevailing over corporate thievery, but America will once again prevail as the world’s fairest country to do business in!

And that will be some really GOOD NEWS!


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