Archive for December, 2008

World Economy: Three priorities for recovery

Monday, December 29th, 2008

Full story at FT.com.

“…On the basis of this admittedly brief sketch, I arrive at three policy priorities for 2009. The first is for central banks to avoid deflation. If ever there has been a need for a central bank to target price stability, it is now. I mean this in the European sense of the term, meaning a small but distinctly positive rate of inflation, say 2 or 3 per cent annually. I assume that central banks will succeed in this endeavour, given the full power of policies deployed. I worry, though, that the US will try to raise inflation afterwards, which would reduce the real level of US debt but create massive distortions in exchange rates and financial flows and produce another global financial and economic crisis.

The second priority is to shrink the financial sector. A disorderly collapse would be catastrophic, but it is neither desirable, nor possible, to maintain the financial sector at its current excessive size. Take the market for credit default swaps, an unregulated $50,000-$60,000bn casino that serves no economic purpose except to enrich its participants at massive risk to global financial stability. [ed- best sentence all year]. I would be in favour, as a matter of principle, of regulating any financial activity on the basis of its economic purpose. Since a CDS constitutes insurance from an economic point of view, we should treat it as such and subject it to insurance regulation (which would kill it of course). [ed. - hallelujah!]

In particular, we should try to avoid the temptation to regulate too much in detail. This is a game regulators will lose. The financial sector is good at deploying existing instruments, and creating new ones, to circumvent any inflexible rule set. We should instead focus on breaking up too-large-to-fail banks and reducing the size of the financial sector in relation to a countryâ??s GDP. In particular, we should not try to guarantee the obligations of a banking sector several times the size of our economies.

Third, and perhaps most important, we need to co-ordinate the policy response at global level, since this is a global crisis with many global spillovers. What I would like to hear from US President-elect Barack Obamaâ??s economic team is not a narrow-minded discussion about whether the stimulus will be $700bn or $850bn, or which programmes it will be spent on. What I want to know is how they intend to co-opt the Europeans and the Chinese into a joint strategy…”

Weekly Commentary December 29 thru January 2

Saturday, December 27th, 2008

Remember that $700 bailout plan from Treasury Secretary Henry Paulson? Hardworking, honest, Henry Paulson. Remember how he stamped his feet and said that giving money to larger firms, such as Goldman Sachs where he earned tens of millions of dollars was vital to the health of the country. VITAL. V I T A L!!! (more…)

Satan’s portfolio

Tuesday, December 23rd, 2008

Check it out here.

“…The more profitable questions to answer are: What does Satan invest in? How does he fund evil? Satanâ??s Portfolio will track the perfomance of the stocks which Mephistopheles is proud to put his money into, namely, companies who benefit from suffering, death, war, tobacco, nutrasweet and fraud…”

Weekly Commentary December 22 thru 26

Saturday, December 20th, 2008

We’ve said it many times, over and over and over…it’s all about year-end bonuses.

This is the week that is. Wall Street pays outrageous year-end bonuses, even in corporations bailed out by the U.S. taxpayers. How much is outrageous? Would you believe $70 billion? Get this…$70 billion is actually 10% of the total US Bailout program approved by Congress and the Bush Administration. The staff at 6 major banks, including Goldman Sachs and Citicorp are ready to pick up their big payouts, despite being the beneficiaries of the $700 billion bailout. Citi is projecting $25 billion in bonuses, Goldman $11 billion, Morgan Stanley $10 billion, JP Morgan $6 billion and Merrill Lynch $11 billion. Just a few days before it filed for bankruptcy, Lehman Brothers had already allocated $6 billion — and they were filing for bankruptcy protection.
But didn’t Congress demand a concession from any bank that received taxpayer bailout money? Didn’t Congress require the banks to give up executive pay bonuses? Enter Treasury Secretary Henry Paulson, ex Goldman Sachs employee. (more…)

Busting Madoff: one man’s 10 year crusade

Thursday, December 18th, 2008

Full story here. Yep, this scheme wasn’t entirely out of the blue. And the SEC had heard about it seriously since 2005. Whoever covered this one up will get their chestnuts roasted over an open fire…

“The Wall Street Journal has published a detailed account of private fraud investigator Harry Markopolos’s efforts over the past 10 years to persuade the SEC that Bernie Madoff was running a gigantic Ponzi scheme (or, at best, was front-running).

(more…)

Rubbing the worry beads

Wednesday, December 17th, 2008

Looking forward to the holidays and the New Year. This has been a lousy year in terms of finance, but not for ShadowTraders. Happily, we at ShadowTraders have more going for us in life than just money. Here are the items weâ??re concerned about in the coming year. Some items were talked about previously, but have now intensified (in no particular order):

1. The hedge fund industry collapsing. The deleveraging alone was causing trouble, but now the Madoff affair will create a massive crisis of confidence for that entire niche.

2. The total cost of bailouts, failouts, handouts and pass-outs will exceed $10 trillion. I had only thought $5-7 trillion only a few months ago. The actual yearly deficit will be between $1-2 trillion next year.

3. Multiple bank failures that precipitate the bankruptcy of the FDIC. (If you want to be really depressed, the FDIC is right at the edge with guaranteeing funds. One more lemonade stand goes bust, and down they go).

4. Commercial real estate experiencing a greater percentage loss than residential housing’s decline.

5. Implosion of the $2.4 trillion consumer credit card industry, which is already underway with a threat to withdraw $981 billion of existing credit.

6. Implosion of one or more major state pension funds (So far I think California is in the lead with the Cal-PERS losses up to 33% of total assets for a minus $81 billion. Race to the bottom, indeed).

7. US automakers going into full liquidation. This would create some 1 million unemployed (from the Big 3 and allied suppliers). The additional 432,000 retirees from the Big 3 would be shunted to the Pension Benefits Guarantee Corp (PBGC) for pension payments. Of course PBGC has been struggling since around 2003. With so many more outstretched hands, they too would surely fall.

8. Inauguration Day surprise (or shortly thereafter). Think ‘bank holiday’ after which accounts over the FDIC limits (I believe $250K right now) will be gone. This may even include small commercial accounts. The workaround is to have multiple accounts under the FDIC limit at various insured banks.

9. Massive hyperinflation due to the already printing of $3 trillion dollars in the latter part of this year (without any corresponding value to back up that money). With the miracle of fractional reserve, that $3 trillion turns into $30 trillion of future leverage. Massive inflation from a run to redeem dollars from our foreign creditors before they devalue any further.

10. False flag activities designed to distract the populace from the financial issues. This could be war with Iran, Russia, Somalia, Pakistan, Burma, etc. Any other conveniently timed â??terrorist activitiesâ??, or domestic detonation of nukes.

11. Failure to transition to the newly elected president (or at least not the one you think should be there). Not as far-fetched with the Blagojevich scandal (half of Illinois is in on this one). We wouldn’t rule out assassination if harsh measures (as far as bankers are concerned) are implemented.

12. A forced conversion of 401(k) accounts to buy US Treasury bills.

13. Shortages stemming from halted goods imports from foreign creditors no longer willing to accept devalued dollars (or from pricing shooting skyward from devaluation).

14. A partial or complete bankruptcy of the US. By ‘partial’ I mean that for some holders of our debt (the ones with nukes who would use them) we would make good. The others would get to sit and spin.

15. A college “crash”. Financing for college tuitions drops down to seriously low levels. Correspondingly, attendance levels drop. The would-be students would probably head to community colleges, trade schools or attempt to find apprenticeships in lieu of spending $10K/year or more.

 We want to make clear, these are concerns, not predictions. Despite any cabals, plans or conspiracies, nothing is written in stone. If I saw a man coming at me with a clenched fist, I wouldn’t just stand there and say to myself “Well, I guess I’m going to get hit.” I’d figure out how to block or duck the punch and be able to defend myself. These items are food for thought, use them as such. Plan for the best, prepare for the worst.

Move on. Nothing to see here. Really.

Tuesday, December 16th, 2008

Full story here. The plot inspisates…even copious amounts of Bee Gees remixes can’t keep the darkness at bay.

“…Bloomberg filed a lawsuit under the Freedom of Information Act on November 7, requesting details from the USFed on Congressional TARP fund confiscation and disbursement. The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The USFed operates as a contractor agency. The Bloomberg lawsuit is Bloomberg LP vs Board of Governors of the Federal Reserve System, 08-CV-9595, US District Court, Southern District of New York (Manhattan).

Incredibly, with shock to many, the USFed will continue to withhold internal memos as well as information, under the defense that they protect trade secrets and commercial information. TRADE SECRETS BY AN AGENCY HIRED TO MANAGE THE DOLLAR AND TREASURYS SOUNDS SO DIVORCED FROM REALITY AS TO BE DESPERATE. [ed. - that's because it is!] That is quantum levels more preposterous than defying the USCongress when it pursued accounting of the gold status owned by the nation. Anger has erupted within the USCongress. The USFed appears to be hiding information so as to shield suspected corruption, as its public response cites â??substantial multiple harmsâ?? being avoided. Harm to whom? Is this Nixon all over again citing â??Executive Privilegeâ?? to conceal crimes and misdemeanors? The USFed is scared and on the defensive. The Board usually does not go into such detail about its position. Lee Levine is from the law firm Levine Sullivan Koch & Schulz. He said, â??This is uncharted territory. The Freedom of Information Act was not built to anticipate this situation. That is evident from the way the Fed tried to shoehorn their argument into the trade secrets exemption.â?

This case is worth watching, but strangely receives very little attention. It could be a landmark case that provides scrutiny and clear definition to the nationâ??s financial purse strings. My conjecture is that the USFed is intent on hiding numerous transactions that hide the tracks of openly debated Wall Street corruption in bond redemption, with powerful motive to avert international lawsuits, and a pervasive desire to prevent grassroots solutions since mortgage bond securities have very little legal standing in legitimacy. WE ARE WATCHING THE DENOUEMENT OF THE BIGGEST BOND FRAUD IN MODERN HISTORY…”

The story continues on, it’s rather informal and somewhat reactionary, but variety is the spice of life.

The bomb in the Xmas stocking

Tuesday, December 16th, 2008

Full story here. From Darryl R. Schoon. Not exactly “glad tidings”, but we must be able to look, listen and act given the unusual circumstances upon us.

“The Muslim terrorists of Mumbai are not our greatest threat nor will they cause the
greatest suffering in the days ahead. That which will cause the greatest grief is the
bankerâ??s system of credit-based paper money, a house of cards now in flames and about
to burn all inside who still believe it to be shelter instead of a charnel house.

(more…)

Fed sets stage for hyperinflation

Monday, December 15th, 2008

Full story here. Another piece from F. William Engdahl, one of our favorites on economics and geopolitics. Ah, the savers will be losers, and all the things you’ve been told about acquiring wealth and comfort in your old age have been pulled out from under an entire class of people. Instead of protesting the wave, we suggest you swim like hell.

“The Federal Reserve has bluntly refused a request by a major US financial news service to disclose the recipients of more than $2 trillion of emergency loans from US taxpayers and to reveal the assets the central bank is accepting as collateral. Their lawyers resorted to the bizarre argument that they did so to protect ‘trade secrets.’ Is the secret that the US financial system is de facto bankrupt? The latest Fed move is further indication of the degree of panic and lack of clear strategy within the highest ranks of the US financial institutions. Unprecedented Federal Reserve expansion of the Monetary Base in recent weeks sets the stage for a future Weimar-style hyperinflation perhaps before 2010.  (more…)

Weekly commentary Dec 15-19

Saturday, December 13th, 2008

Friday the Market took a huge dump in the morning. Why? Because a few Southern GOP Senators decided to vote against the automobile makers, blaming the United Auto Workers union. To them, the price of labor was just too expensive causing the price of GM and Chrysler cars to be too high. But lets take a closer look at what was claimed. (more…)