Bill Cara’s Blog for April 23, 2010 [See post-close report]

"The June contracts hit a high of 82.20 last evening. Above that is the danger zone I have been referring to."

Could someone explain what Mr Cara meant about the danger zone he had been referring to. This is my first week back to the blog for quite sometime. Thanks!

"This is the same loan a week ago he said he didn’t need. Is it any wonder why people are so skeptical of politicians."

Bill, no kidding - for a while now traders in my room compare these reassurances by Greek and EU officials to infamous "We don't need to raise any more capital" the banks spewed days before collapse. The more they repeat it the more you know it's inevitable. And yes, EU and EMF guys said a few times over last week or two that Spain, Portugal and Italy are fine.

Oh, and ain't this a beauty... look who is to blame for what's happening:

April 23, 2010 5:58:05 AM
*(GR) GREECE ASKS TO FORMALLY ACTIVATE EU/IMF RESCUE PACKAGE
- Was of imperative importance to activate the rescue package.
- PM says Greece's "ship was ready to sink" and was exposed to speculators.
- Greece will not allow market's speculators to threaten sacrifices made by Greek people.
- Markets did not respond to EU Summit anounce on support package and have not given the country enough.
- Hopes decision will bring "safe harbour," Greece has taken painful measures to regain credibility.
- Will reach our target, to ask the Finance Ministry to formally begin the aid process.

Welcome back, man. I see you grew horns over the past year.

I don't have a position in it but you might want to check this one out. There is some heavy volume in this name and it is way down from old highs. I believe this could be a good gainer. I might end up taking a position.

gregdickie

Thanks for the help. Appreciate it my friend!

AMZN - estimates tweaked at Citi. AMZN 2010 EPS estimate lowered to $2.89, 2011 raised by a penny to $4.07. Solid Q1 beat with typical conservative guidance. Maintain Buy rating and $180 price target.

AMZN - estimates, target increased at Goldman. AMZN estimates were raised through 2012. Company is seeing accelerating sales growth. Buy rating and new $180 price target.

MSFT - PT Raised from $36 to $38 @ McAdams Wright Ragen. Buy

MSFT - target, estimates raised at Citi. MSFT price target lifted to $37 from $32 after inline 3Q10 results. Leading enterprise indicators improve. 2010 and 2011 EPS estimates increased to $2.07 and $2.34, respectively. Reiterate Buy rating.

MSFT - estimates, target upped at FBR Capital Markets. MSFT estimates were boosted through 2011. Company continues to benefit from the new PC upgrade cycle. Market Perform rating and new $31 price target.

NOK - Downgraded to Hold @ Gabelli

NOK - Downgraded to Sell @ Davenport

NOK - Downgraded to Hold @ Citigroup

steel makers may benefit from their auto production..

I'm not in this name but this is HIGHLY leveraged to an economic recovery. Very risky but could be a big gainer.

Sold at $33.70 from yesterday.

http://www.ft.com/cms/s/0/128381e8-4e62-11df-b48d-...

Goldman roles in Lloyds deal in spotlight

By Patrick Jenkins in London

Published: April 23 2010 00:04 | Last updated: April 23 2010 00:04

Goldman Sachs was both an underwriter and an investor in Lloyds Banking Group’s vast refinancing deal late last year, the FT has learned, highlighting the potential conflicts of interest at the heart of the investment bank’s business model.

According to four people involved in the capital raising, Goldman – a dealer manager on the debt portion of the £23.5bn transaction – demanded last-minute changes to the structure of a deal it was underwriting. This had the effect of benefiting its position as a bond investor.

Goldman bankers stress that its Chinese walls bar underwriters from knowing anything about the investment activity of its proprietary traders and say the exposure of the affair reveals rivals’ opportunism in besmirching its reputation.

The incident, in the final hours of UK bank Lloyds’ capital raising, the biggest in corporate history, last November, will nonetheless add fuel to critics’ suspicions that Goldman puts its own interests ahead clients’.

The revelation comes as Goldman fights fraud charges brought by the US Securities and Exchange Commission.

According to those involved in the Lloyds refinancing, Goldman on the eve of the deal’s announcement that the extra interest payable on the bonds which were to be exchanged for new ones should be increased to as much as 2.5 per cent, when a consensus of other banks was 2 per cent. The rise followed a surprise cut in the credit rating assigned to the securities, making them a riskier investment.

Goldman was also involved in discussions about the ranking in a so-called waterfall determining which bonds should be prioritised for the exchange offer. “They were dictatorial about it,” said one person involved in the deal. Goldman bankers say its role as dealer manager was subservient to senior advisers, and did not allow it to dictate the terms of the waterfall.

It emerged that Goldman was a large investor in the 6.9 per cent bond that was top-ranked for the waterfall, said four people close to the deal. One person said Goldman had bought as much as half the $1bn issue. However, Goldman bankers said last night its proprietary position was “not substantial”.

Goldman’s role in the transaction – both the alleged conflict of interest and the allegation that it helped make the terms more expensive – will be politically sensitive, given that the UK government owns 41 per cent of Lloyds.

Lloyds would not comment on the advice it received but said: “The final decision on the terms and pricing of this offer was made by the group following the recommendation of the syndicate, and not any one bank.” Goldman did not comment.

Short at $145.

oh, of course, stupid me - this is probably why the EUR is being bought:

Greek Cash-CDS Negative Basis Spread Hits Record, CDS Implies 33% Chance Of Eurozone Collapse

The risk/return scenario, as Credit Trader points out, is assuming a 200bps upside to bond spreads, or a 400 bps downside to an inline level with the rest of Europe, in essence a 33% chance of a free fall bankruptcy, whose implication would most likely be the collapse of the Eurozone, as the EMU would be defunct if a member country escalates into an uncontrollable bankruptcy.

Team, I like that entry. I would call it a failed break out set up. With the addition opf no pre earnings buzz to inflate price.
Good luck,
Bob

Greece is not going to cause the euro to slide into oblivion. Worst case there's a restructuring, bondholders take a haircut, and life goes on. The 3% tail does NOT wag the 97% dog. This won't be happy news for all those German banks holding Greek bonds, but neither is it the end of the world.

At least that's my story anyway!

http://www.ritholtz.com/blog/2010/04/10-things-you...

The point I liked best - the prosecutor who is now director of SEC enforcement is apparently the real deal. From the SEC press release announcing his appointment:

http://www.sec.gov/news/press/2009/2009-31.htm

"Mr. Khuzami also prosecuted the "Blind Sheik" Omar Ahmed Ali Abdel Rahman in what was then the largest terrorism trial in U.S. history. Following a 10-month trial, 10 defendants were convicted of operating an international terrorist organization responsible for, among other things, the 1993 bombing of the World Trade Center, the assassination of Meir Kahane (the founder of the Jewish Defense League), and planning the virtually simultaneous bombing attacks on the FBI's New York Headquarters, the Lincoln and Holland Tunnels and the United Nations Headquarters"

The man who took on Sheik Omar and sent him off to the big house is unlikely to be concerned about a bunch of bankers who think they can run the world.

There may be hope after all.

Gotta love it...

SEC staffers watched porn as economy crashed
As the country was sinking into its worst financial crisis in more than 70 years, Security and Exchange Commission employees and contractors cruised porn sites and viewed sexually explicit pictures using government computers, an SEC investigation obtained by CNN showed.

ALOHA!!

It does not matter "who" is the more productive when it comes to "taxpaying". You are either paying more taxes or you are not. If you are paying more taxes it usually means you earned more, whether you got out of bed or not! In fact when I worked for the IRS in the early 1980s the rule was to get taxpayers to report income from "all sources". The Director even emphasized even if someone writes down the source of income as "drug dealer"! Accordingly then the IRS in its privacy rules would not report a drug dealer to the DEA otherwise US citizens would be less likely to comply with the voluntary status of tax reporting in America.

In terms of "$250k income" ... Depending on where you live in America and how you live, it is not the "lap of luxury" it once was. It still beats $100k, but you just don't get the guaranteed retirement, because it is what you "net" that makes all the difference in the World. It ends up being the age old fiduciary thing about spending more when you make more. It is the rare person who can find the inner fortitude to make more and spend less and there you have the "moral issue" that drives the US Treasury printing press. Few humans who are offered unlimited spending using other peoples money(OPM) can resist spending in a rampant manner. There again all that backs a US Dollar is "faith and credit". That's virtually a worthless promise in DC today.

In my mind Warren Buffet is a total Keynesian Lap Dog for making that statement. What business does the US government have to constantly take and take from its citizens while they spend like there is no tomorrow. The truth of the matter is that our taxes are going to support a "monopoly gone wild" that has been a drunkard on its own power for 100 years now.

In Obama's State of the Union speech he proposed cutting government spending by $20BIL. He then spoke of Pay As You Go but that does not kick in until another ten years. There is no serious effort to stop government spending and offering up $20BIL is like tipping a waiter in a restaurant a penny! The key to survival for America and its current government is "less", but then who could run on such a campaign promise and win? Who here wants less? Its the human condition and that is the Human Action that rules our monetary system. Fiat has always been about more not less, but at whose expense? We are finding out who that "who" is now!

Where did all the money come from?

answer: The Fed printed it and lent it to the IMF, in addition to the ECB printing it, and they both combined and lent it to Greece, who will now happily waste it away, just like they did all the other billions.

The real question should be at what point does everyone realize that none of it will ever actually be repaid? It doesn't even matter what the rate is.

Luckily its just digits in a computer... No biggie, they can just create some more...

$20 Billion? LOL!

We've spent/borrowed over $6 TRILLION and he's gonna cut $20 B?

That's not even a penny tip....nor is it very funny.

BTW Kaimu, guess where that $65 M for the incinerator is going to come from?
China or Japan by way of our kids, grandkids and great grandkids or us by way of s-l-o-w motion default by devaluation. Better buy a wheelbarrow while you can.

According to one observer yesterday, if you had walked from your home in 2007, you could now (with 3 years grace from the hit to your credit) afford to buy your own home back at half the price with a handy FHA loan. Time wounds all heals.

edit: FNMA announced today that the waiting period for a previous foreclosure or deed in lieu of foreclosure is being reduced from 4 years to 2 years in July. You will need credit recovery and 20% down. FHA only requires 3.5% down.

kaimu -

"In my mind Warren Buffet is a total Keynesian Lap Dog for making that statement."

I can see him humping Obama's leg but he's still an All American show dog.

"Oh, but wait, then they'll take GE and Google and the investment banks overseas."

LOL! Mom always said, "Don't look a gift horse in the mouth".
Let them steal THEIR $$$ and see how it goes. I don't think the citizens of those countries would be so polite and restrained as we have been to the banksters.

"Investment banks"? In other countries they call that fraud or theft!
I say good riddance.

Example: If, rather than giving $65 M to Duke energy/Areva through their Adage LLC consortium for one incinerator/generator that employs perhaps 100 people, if they gave 65 citizens $1M grants/loans to start small businesses, who do you suppose would be more efficient allocators of that capital in terms of employment?

Craig -

"Let them steal THEIR $$$ and see how it goes. I don't think the citizens of those countries would be so polite and restrained as we have been to the banksters."

Yes, yes. Broker-dealers, conglomerates, and Big Brother (goog) can operate from the Bahamas along side Cara Trading Advisors and Congress will grow a brain and grant funds to the little earners around $250k to allocate more jobs but, alas, we ramble. THEIR control of Congress with threats is too strong.

I got my dose of kaimu logic like Sherman's 'March to the Sea' and I'm satiated ;)

sadleb,

"The top 1% now pay more in taxes than the bottom 95%. What that says to me is that the less productive taxpayers in America are getting bailed out by the more productive taxpayers."

I don't think that statement gives enough info to agree or disagree with it — in total dollars or percentage?

Certainly it is cannot be true as a percentage of total monetary gain. I do know that in the mid 1970s when the Kennedy family sold the Chicago Merchandise Mart, I paid more in actual dollars than Teddy Kennedy did according to an article about the sale. (I think in LIFE magazine.)

Within the past several years Warren Buffet claimed his secretary paid more taxes than he did.

Frankly, I don't believe the statement at all. You don't get to be in the top 1% financially if you are that stupid. Simply put all your investments in tax exempt stuff and party on the yield.

I found this on Sec.gov. What a travesty this is for investors. I'm assuming this honors an agreement signed with the outgoing CEO but what an awful agreement. They are paying this guy $1.3 Million, 12 months of health insurance, $12k for relocation costs, and up to $10k in legal fees after he leaves...for what? The company had $26 Million and $25 Million in losses in 2008 and 2009:

"On March 23, 2010, Rick A. Lepley, President and Chief Executive Officer of A.C. Moore Arts & Crafts, Inc. (the “Company”), informed the Company that he would retire as President and Chief Executive Officer and member of the Board of Directors effective March 31, 2010 (the “effective date”). On March 29, 2010, the Company and Mr. Lepley entered into an agreement and release (the “agreement”). The agreement provides that the Company will pay Mr. Lepley $645,890, an amount equal to one year’s compensation at his current rate plus pro rata bonus. Half of this payment will be made in October 2010, with the remainder in six subsequent equal monthly installments. The Company will also pay Mr. Lepley a consulting fee of $53,824 in 12 equal monthly installments. In addition, Mr. Lepley will receive reimbursement for health insurance benefits for 12 months following the effective date, payment of $12,000 for relocation and moving costs, and payment of up to $10,000 in legal fees for review of the agreement. The agreement amends Mr. Lepley’s stock appreciation rights agreement, dated December 3, 2008 (the “SARs agreement”), to provide that all unvested SARs under the SARs agreement will vest as of the effective date and Mr. Lepley will have until February 20, 2012 to exercise the SARs. Mr. Lepley was originally granted 150,000 SARs pursuant to the SARs agreement, 50,000 of which vested on December 3, 2009. "

• Minimum annual income to make the top 400 (taxpayers) = $138.8 million.

www.ritholtz.com/blog/2010/04/top-400-taxpayers/

Sorry, not sure why you address this to me... did I ever opined on whether it was done deal or not?

And yes, "trade what you see" works like charm. Day after day, setup after setup, trade after trade. For the freshest example, have a look at clean textbook C&H on intraday SKS with trigger at $9.85, perfectly supported by breakout on daily chart.

I see VIX -1.3% at just over 16.00... seems reasonable to me.

Whole thing feels like distribution at the top for what, at least half-year now? :)

April 23 (Bloomberg) -- Goldman Sachs Group Inc. Chairman Lloyd Blankfein was sued as part of a shareholder derivative lawsuit filed in New York State Supreme Court in Manhattan.

To contact the reporter on this story: David Rovella in New York at drovella@bloomberg.net

Bought a straddle of sorts on AMZN at the close. I bought a couple of AMZN $150 May puts at $9.4 and I went long the stock at about $143.5. The weight is slightly shifted to the downside. My feeling is the earnings announcement was just not good enough to continue lifting the stock but I want to take part in a possible bounce on Monday.

Regarding the markets, today was just follow-through from yesterday, which was one of the most bullish days I've seen in a while. My feeling is that the market is strong enough to ignore sovereign debt crises. However, I feel that as soon as the Greece is solved there will be an immediately shift toward Portugal. I continue to see these as reverberations or aftershocks of the 2007-2009 crisis and not a signal of a new one...however, there are only so many hits the markets can take without succumbing. If Portugal is indeed as bad as Greece then I believe we should be taking on a bit less risk if we are doing anything more than day trading.

So it becomes a question of:
Does the economic growth in the US pick up sufficiently such that it will wipe away or delay these sovereign issues? Which one is stronger? I'd argue the former but I'm trying to take a little bit less risk on my longer trades/investments.

ALOHA!!

Illini-Yep ... saw that! I actually posted that same data info here back on 03/16/10 #59078, entitled TOP 400.

The info on the TOP 1% was from the TAX FOUNDATION which has been around since 1937 reporting on taxation issues in the USA. Their data source is the IRS. Just like Barry R's is ... This is not tin hat conspiracy data. Its the US Treasury! HA!!

Hola Vad ! no, it was not really directed towards you.

But I did like your comments about the politicians.

The point about "trade what you see" an excellent motto, but what I'm seeing looks very uncertain. Day trading is now, the only option, maybe minute-by-minute.

What we will see, guaranteed, is wild inflation in the next few years.
Baclava anyone ?

Illegal immigrants and aliens to get the boot.

Hmm that's interesting stuff TOF. Remember the Bear Sterns option buys a week before it went BK? They too seemed really crazy at the time.

Hi All, I figured I'd check in again and post something for the benefit of the public good. I just saw that the Adjusted Monetary Base has declined yet again over the past 2 weeks:

http://research.stlouisfed.org/publications/usfd/p...

This is the fourth decline in a row, and I am really surprised that the equities have not crashed yet, since EVERY large decline in AMB over the past couple of years was followed by a decent correction in equities.

Hey teamonfuego, I looked at this today and looks like right after your post here, volume picked up huge then stock sold off sharply on a huge volume (3 times normal daily avg) so what is the story here?? Are people shorting it now or what?? your insight is appreciated.

thx

Vadym, I remember a few months ago you said that you would be comfortable shorting this market after a major spike up that kills all the bears and sucks in all the public, and you also warned us about that spike being difficult to short as it could last for WEEKS. I am thinking: aren't we having that spike now? When this spike finally turns down, would you consider it to be a long-term market top and jump in comfortably on the short side?

Thanks illini and kaimu for the average income of the top 1%. From the link:

• 81.3% of income was from capital gains, dividends or interest. Salaries and wages? Just 6.5%.

So much for work. Sheesh. So as I understand this, the bulk of income tax comes from stock and real estate sales gains, bond interest, and, to a much lesser extent, dividends by those 400 making over $138.8 million per year. I suspect dividends don't add up to much of this share since we have not seen corporations pay out much this way over the recent past. Real estate sales are probably also a smallish share since the almighty 1031 and 1041 Exchanges came along to help the landed gentry and adulterers keep swapin' anything that moves or even affixed to the ground. So that leaves stock sales.

Imagine that. Congress could abolish income tax, first, and push up cap gains tax and the exchange rules, second, and still goose the economy by mistake. Eureka!

Big difference between then and now, though. Big, big difference. The only thing I can think of that would ever give us a spike like that is an unforeseen sovereign default or maybe something else....like geopolitical or something.

http://www.financialsense.com/fsu/editorials/willi...

"The following are points made by Rickards in synopsis, elaborated upon by my commentary. He explains that obviously not enough gold & silver exists to cover the physical demand if holders of paper certificates in unallocated accounts demand delivery. He refers to the now open admissions that 100:1 leverage is used in gold inventory management at the metals exchanges. For every gold ounce in inventory, 100 gold ounces are claimed in futures contracts held. He all but describes a plank of any Ponzi Scheme. The fractional practice mimics the commercial banks with reserves and loans outstanding, a shared lethal flaw. For banks, they admit their fractional banking practice, but not the gold bankers who appear to run a criminal syndicate. Most likely only a small fraction of claims could be covered with the practical physical supply available, Rickards admits. Cash settlement would have to be enforced in the majority of cases, known as technical default. The terms of cash settlements would not be advantageous, to say the least. In fact, he omits to mention that the widespread policy used since December in London has been for cash settlement of long gold futures contracts, with a 25% bonus."...

"Good to hear from you again. Hope your "away from the desk" trades have been working for you."

Thank you, teamonfuego. I am still alive, although I am down about 10% since my portfolio peak in June 2009. I was scaling into ultrashorts in November and December, and then gave up and closed most of them a few days before the January sell-off. That cost my portfolio about 5%. Then, I started scaling into ultrashorts in February during the rebound, being determined not to repeat the same mistake as in January. Naturally, the market has not only reclaimed its January peak but also moved MUCH higher. It almost feels like this final spike up will not end unless I give up on my ultrashorts once again. I'll let you guys know when I do that, as THAT will be time to go short. :)

I also took a big hit in UNG/HNU.TO in the fall of 2009 when contango was rampant, which cost another 5% to my portfolio. Recently, I've been trying to "reclaim my honor" with NGas and have accumulated a large position in HNU.TO at the average cost of $6 and in UNG at the average cost of $8, and then went out on a limb and bought some more at the recent lows. Today I have unloaded those extra shares of UNG and HNU.TO for a nice profit, so I am celebrating tonight. :) Mark is suggesting that $4 is an unsustainably low price for NGas long-term, so if NGas pulls back again, I'll reload those "extra" shares I sold today.

Vadym, I remember a few months ago you said that you would be comfortable shorting this market after a major spike up that kills all the bears and sucks in all the public, and you also warned us about that spike being difficult to short as it could last for WEEKS. I am thinking: aren't we having that spike now? When this spike finally turns down, would you consider it to be a long-term market top and jump in comfortably on the short side?

David,
no, I don't see it as that final spike. It's still an orderly climb - just like orderly slow slide is not a capitulation. Real final spike should be buying panic - get me in at any price, I can't stand the pain of missing the boat, this will never end, whatever price I get it still will be fine, buy-at-market orders, all in, fully margined... this kind of feeling. Explosive parabolic move on the chart, like the end of 1999 - first months of 2000. All kinds of cr*p doubling and tripling in a matter of hours. Manias in this or that sector on rotating basis. TV heads screaming BUY. In short, if you observed market closely when tech boom lived its last days, you will recognize it.

Now, as for shorting - this spike I described, will all its insanity may continue for a while - a few weeks or even months. So, I'd wait for clean trend reversal before changing my opinion about trend direction.

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2...

No ----.

This doesn't bode well for my short positions, but what the hell, I am ready for all my ultrashorts to go to 0 -- they are only 20% of my portfolio right now. On the other hand, if we get a decent market correction, then I'll close all my remaining short positions if/when the market retraces up 50% of that correction, as the chance of the market making new highs at that point will be large enough. So even if this is not a final spike up, then don't you think we are ready for at least a 7 to 10% market correction now?

Perhaps Goldman can use this in the Abacus case as evidence that sometimes they do put their clients interests first! Linking GS to Rajaratnam is fatal. Anyone who pooh-poohs the SEC case against Goldman is a drug user.

Karma is a real b!t#. The pain is only just beginning for Goldman.

April 23, 2010

(Crain's) — Banking regulators seized seven Chicago-area banks late Friday, including Rockford-based Amcore Bank and Chicago’s Broadway Bank, owned by the family of Democratic U.S. Senate candidate Alexi Giannoulias.

Buyers of the seven failed lenders included Harris N.A., which obtained the biggest prize in Amcore, with $3.8 billion in assets and $3.4 billion in deposits housed in 52 branches in Illinois and Wisconsin, including 24 in suburban Chicago.

Acquiring the $1.1 billion in deposits and $1.2 billion in assets of Broadway Bank was Chicago-based MB Financial Inc. MB Financial also obtained the $486 million in assets and $492 million in deposits of Chicago’s New Century Bank, which was also closed by state regulators.

Four other Chicago-area lenders — Lincoln Park Savings Bank, Citizens Bank & Trust of Chicago, Wheatland Bank of Naperville and Peotone Bank — also failed Friday evening.

For Harris, the Amcore purchase is its first foray into buying failed banks in the two years since banks began suffering casualties in the financial crisis.

Harris is acquiring 52 branches of Amcore, which will open as Harris branches on Saturday. It also agreed to purchase the vast majority of Amcore's $3.8 billion in assets, with the FDIC agreeing to share losses on $2 billion of those.

Harris has held discussions with Amcore periodically over the years before getting the chance to get the franchise for virtually nothing.

"This fits us strategically," Harris CEO Ellen Costello said in an interview Friday night.

http://www.chicagobusiness.com/cgi-bin/news.pl?id=...

An interesting clip:
Market Monitor - Mark Leibovit
http://tinyurl.com/yas8lnc

currently looking at svc.to, pkt, and ALLT. took small positions to start.
instead of hoping to rely on aapl alone thesis is the bandwidth police above must stand to benefit as cell/smart phones will go the way of the PC.
Sector still in infancy and contoversy.

LT buy but speculative.
anyone know this sector (deep packet inspection)

sorry 1 handed typing tonite so pt form.

trend is your friend - buy high sell higher - hope this works out
at least til August Top per clip.

David, Bolus,

Is it possible to have inflation without an increase in the monetary base?

Is there something I'm missing?

I went fully hedged last Nov. I was 6-8 months early to the last major correction. You can imagine how much grief I took in 2008 when the market was making new highs and we hedged and every new high i would add shorts. Well, needless to say My clients did very well in 2008 and we were long in 2009 so they did great last year as well. This year we are down 2% YTD. I'm getting the same calls from clients that I was getting in 2007-2008. I will tell you this. I am more nervious now than I was in 2008. I am very certain this market will go down hard and I feel it will be much worse. I marvel at a SHLD stock with a 60PE. Don't be surprised to see a '87 type of correction. Housing will lead it down. Not only will the home buyer credits expire but the FHA will go to a 6% down payment in July. You can put a fork in the housing recovery.

"Is it possible to have inflation without an increase in the monetary base?"

The missing piece is credit. Yes, with massive credit expansion there can be inflation, and also with rising velocity.

I seems the next leg down in the RE markets, residential and commercial that noone sees coming, will implode the credit(debt) faster than Bennie can expand the base/velocity in the best case. That is why I'm waiting for the signal from the CRB whether we are going to deflate or inflate. CRB must exceed Jan's high by Sept or we deflate, according to cycle theory.

My opinion is we are going to deflate into 2012 and then the Govt attempts to counter that will launch hyperinflation and destruction of the currency. We first must exit this euphoric state with maximum Govt meddling. Under the deflationary scenario, Gold could fall to $750 and the median home price could fall to 50 - 70 oz Gold, or way less than half of where the price is today in real terms (not nominal). There are way too many homes for the demand and price point, and far too little Gold for a hyperinflationary environment.

I looked at the Ag commodities yesterday and there is not a whole lot of price inflation yet, but Beef is vertical and Surgar has been very high.

"The missing piece is credit. Yes, with massive credit expansion there can be inflation, and also with rising velocity."

I see you and I both expect deflation to continue for a while. Right now there seems to little real desire by either individuals or business to borrow even if banks begin to loosen. Can you think of other ways to shovel the money into the system?

Possibly through welfare?

People who can't afford health care insurance will have federal subsidies, I understand. I suppose we could see an entire generation of unemployment — there are many now who no longer qualify. My son has used his and Illinois requires he work full time for the same employer for a year to be able to draw again. (He almost made it but his hours have been cut to 32 per week a couple months ago.)

What good does it do to know or look at the truth in this world, anymore?

Sad that we are now worse liars that all those we used to laugh at.

"NEW YORK (AP) -- E-mails released Saturday morning show top executives at Goldman Sachs Group Inc. boasting about the money the firm was making as the national housing market collapsed in 2007.

The e-mails suggest Goldman benefited from its bets that securities backed by subprime mortgages would lose value. The messages seem to contradict previous statements by the investment bank that it lost money on the securities.

"Of course we didn't dodge the mortgage mess," CEO Lloyd Blankfein wrote in an e-mail dated Nov. 18, 2007, according to the e-mails released Saturday by the Senate's Permanent Subcommittee on Investigations. "We lost money, then made more than we lost because of shorts."

Goldman restated its position Saturday that it did not reap huge profit from bets against the market........."

-------------

No amount of fines is enough to properly punish these hoodlums. Bring on the criminal charges. Are you there, Andrew Cuomo?

"No amount of fines is enough to properly punish these hoodlums. Bring on the criminal charges. Are you there, Andrew Cuomo?"

Don't I wish!

But according to Charlie Gasparino who I saw on Don Imus' show...

The new regulations have a provision which will makes it a matter of law that those too big to fail must be bailed out by the government (We the People) should this happen again.

It's Congress who is the ultimate culprit.

But it seems to me his major point is that we should be tipping back *IN* to recession because money supply growth appears to be negative....

Yet EVERYTHING seems to be going *UP*. How can that be? He was also talking about a $4 Trillion deficit, maybe between the Feds and states. So, what gets me is... Where is all the money coming from to drive EVERYTHING UP? If its coming out of bonds or treasuries, why aren't rates rising? If the Fed is printing to keep rates from rising, why isn't that reflected in the numbers?

Yes, I think he expects hyperinflation when it gets to where the rest of the world refuses to hold dollars, and the Fed is forced to monetize. I think he is saying within 5 years there, which by the way, I agree with in general.

Is the money coming OUT of the Euro? Does it go back there once Greece is resolved and sets a precedent for how to solve the rest of the PIIGS?

And HOW/WHO is going to solve it for the US when eventually everyone realizes WE have the problem biggest as well as worst of all? My guess is it means a "new" world reserve currency for that...

for myself and anyone interested.. http://www.centerwatch.com/clinical-trials/overvie...

I could not be happier than to have triggered the discussion! I read all, study all, and am conflicted. I do think there is no way out, but the Govt., the HBB, and the Illuminati will formulate one. But not for a while.

I just spent 3 hrs in the gym and am having a dilemma to cook dinner. ;)

Carry on!!! I am 50% net short, and may cover into what looks like the mid-cycle decline of the 22-wk cycle. ;)

An that grin hurts!

seems like all is well.

$KRX is off to the races. $USD in a weekly time frame gives the impression of rolling over which should push the futures nicely and $GOLD continues to find support as well. I would have thought gold or finnies, not both. IOO has pulled back while $SPX has pushed ahead. What a mixed bag. Someone gonna get sucker punched?

Happy to be focusing on one trade at a time and leaving the big picture for others to comprehend.

If we don't ration healthcare we're just plain idiots. We ration Luxury Automobiles, and Summer Homes. Why not healthcare as well? And its even smarter to ration healthcare to folks who actively cause damage to themselves. Once again, having the prudent (nonsmokers) bail out the reckless (smokers) seems - wrong headed.

I'm actually pretty confused how healthcare became a right, as opposed to a "would be nice" benefit that we can have only as long as we can still afford it.

I goggled and finally got it!

Perhaps my questions on the "how" of it coming to be will be answered.

Right now the most inflated thing I see is the Dow — and the blather coming from D.C. and Wall st.

Dave,

As usual we are on the same page. IMO, health care will be rationed in fact if not in policy. I have heard from friend in the medical profession here that they will retire early rather than accept any more government enforced "charity" cases. These mandates have required the hiring of far too many clerical employees and cost more to service properly than is economically possible.

Palin's claims of death squads is hyperbolic rhetoric, but may in fact come to pass simply because the capacity to care for everyone — cradle to grave — brings the grave around a bit sooner.

In a move to "create fairness for all" the most responsible will, once again, come up with the short stick. There is no difference in the idea health care is a right and owning a house is a right.

Reality always trumps idealism.

http://tinyurl.com/2be7rpa

We need to listen to all points of view.

I've been following Sonders' calls since the nineties (when she was a frequent guest on Rukeyser). She was early in seeing the recovery, and if you follow her Webcasts on Schwab, it's clear she's been bullish for at least the past 12 months.

Sure, there's risk in being long right now.

There's also risk in being short right now.

And there's the risk of being left behind while holding cash.

Risk management. Your decision.

I find it disturbing how the U.S. Government and their shills present a pretty picture of inflation by excluding food and fuel from the calculations.......like people don't consume those two items.

The folks at http://inflation.us/ recently published this:

April 22, 2010

U.S. Food Inflation Spiraling Out of Control

The Bureau of Labor Statistics (BLS) today released their Producer Price Index (PPI) report for March 2010 and the latest numbers are shocking. Food prices for the month rose by 2.4%, its sixth consecutive monthly increase and the largest jump in over 26 years. NIA believes that a major breakout in food inflation could be imminent, similar to what is currently being experienced in India.

Some of the startling food price increases on a year-over-year basis include, fresh and dry vegetables up 56.1%, fresh fruits and melons up 28.8%, eggs for fresh use up 33.6%, pork up 19.1%, beef and veal up 10.7% and dairy products up 9.7%. On October 30th, 2009, NIA predicted that inflation would appear next in food and agriculture, but we never anticipated that it would spiral so far out of control this quickly.

The PPI foreshadows price increases that will later occur in the retail sector. With U-6 unemployment rising last month to 16.9%, many retailers are currently reluctant to pass along rising prices to consumers, but they will soon be forced to do so if they want to avoid reporting huge losses to shareholders.

Food stamp usage in the U.S. has now increased for 14 consecutive months. There are now 39.4 million Americans on food stamps, up 22.4% from one year ago. The U.S. government is now paying out more to Americans in benefits than it collects in taxes. As food inflation continues to surge, our country will soon have no choice but to cut back on food stamps and other entitlement programs.

Most financial experts in the mainstream media are proclaiming that the recession is over and inflation is not a problem in the U.S. Unfortunately, they fail to realize that rising food and gasoline prices accounted for 58% of February's year-over-year 3.85% rise in retail sales. NIA believes price inflation is beginning to accelerate in many areas of the economy besides food and energy, and all increases in U.S. retail sales this year will be entirely due to inflation.

2nd,

First let me admit I live in one of the worst unemployment areas and that probably colors my view. By the same token those who are not in such a situation cannot help being more optimistic.

1. Liz Ann Sonders is a "sell-side" person. Like Rukeyser she is likely to benefit by being optimist.

2. She has probably gained with the big up move in the stock market.

The stock market is not the same as the economy. The 1990s tech boom was able to survive on momentum far longer than I ever expected. I think what we have now is far worse than conditions 10 to 15 years ago. Without our manufacturing base and with the added years of increased debt by individual, cities, states and above all the federal spree, we are collectively broke!

There are alternatives to holding cash, but I would choose ones which are very liquid because we will eventually see an opportunity to buy the best managed companies at yard sale prices.

The best help for patience is a good, long memory :-)

Grym- I hear you. Let me repost a link that appeared earlier:

http://tinyurl.com/2amusu6

Along with the following excerpts:

"Looking at the MSCI World Index, the decade that had the highest real book value growth – and by a far margin at that – was 2000-2009. The decade also had, by far, the worst total return of any decade.

"As for the MSCI USA Index, the decade with easily the best real growth was also 2000-2009, which again also easily had the worst returns.

"Related to the prior point, the decade with the lowest nominal growth rate in the U.S. – that's the real growth rate but adding back in inflation – was the decade with the best returns: 1990-1999."

"Quick, name some market pundits who are extremely bullish and upbeat about the future. Sure, there are some who are definitely bullish, but outrageously so? Even though technology continues to accelerate and the world is changing faster than ever? Remember that "Black Swan Events" aren't always negative; sometimes they are wildly positive. Though the pain of the recent market panic is still fairly fresh in all of our minds, we all also realize that in each of our respective lifetimes there are incredible innovations coming our way. As a result, our collective lives will be better and there will be plenty who profit – both economically and otherwise.

"Now, name some people who are negative. It's not that hard to find a number of people who are catastrophically bearish, never mind simply defensive. In a contest of whether or not there are more bears or bulls, it's not even a fair comparison. Contrarians take note."

As the author implies, periods of low economic growth do not necessarily mean periods of low returns in the stock market.

The staggered correlation between real growth and stock market returns has to be one mind-blowing observation. Yet I don't see any comments that indicate it surprised anyone here (as much as it surprised me).

"Do they really dare to raise rates when doing so would devastate the economy?" - Grym

"No, Grym, rates have to lift now. The Fed cannot continue to buy all the Treasury debt." - Bill Cara

I think QE continues without rate hikes to the November election in attempt to preserve established power monopolies. Expect more shocking Fed debt expansion reports from kaimu. Rates MUST climb from there but here's Armstrong's latest (highlighted by Sinclair):

"It is time to restructure everything for once from the ground up. Enough is enough! We have to begin to step back and look at the whole economy and how it works. Even the idea that the Fed or anybody can dictate the rate of interest is absurd. If capital will not invest in Greece, the rate will rise until the FREE MARKET attracks [sic] capital. There is no dictating. The whole idea that the Fed controls interest rates is also absurd. It is just not true.
It is time we stop pretending. The Fed raises and lowers interest rates in hope that it will indirectly effect banks by altering demand. This is like harrassing your wife in hope that she will force you to take out the trash. The DIRCT way to effect banks is to raise or lower the reserve ratio. In other words, if the economy is heating up, you now raise the ratio requirement from 6% to 10% of deposits and that will reduce lending. Instead, the Fed raises interest rates and tries to make the consumer pay so much that they will reduce their demand. Sorry, but it is time for a complete restructure!" - The Paradox of Solution, 4/18/2010 Martin A. Armstrong, p. 4

Problem with this is that the extend/pretend has effectively made the reserve ratio negative even after expanding public debt by trillions. Fractional reserve banking system is now the no-collateral-banking-bailout-confidence system. We must allow these TBTF banks to go down in an orderly fashion and start recognizing investment banks are not banks at all but broker-dealers with HAZARDOUS prop-desk conflicts. GS/SEC is a start. The new Congress come January 2011 will break this imbalance wide open.

Thanks for the WIR, Bill. Outstanding as usual.

Seems like a very interesting revelation, that SPY:IOO. I'm not sure if it is Americans coming home to mama, or Europeans fleeing Greece, Europe and the Euro, but either way you slice it, that chart shows that money that sloshes in sloshes out just as rapidly. It reminds me of a ship full of water that has no watertight bulkheads. Every movement of the ship up and down has water racing from one end to the other, one side to the other, with great speed and force.

In a world of fiat currency, with nobody sure where the next shoe will drop, with peak oil on the near term horizon and sovereign defaults looming, money runs violently from one market to another, never staying long.

At least that's my interpretation. Very cool Bill.

2nd,

Thanks for the link. I guess I'm neither a bull or bear where the markets are concerned. I'll just sort of wait in bond funds (VWEHX)and other dividend paying stuff (ETP) until I believe some sort of major direction is established.

Obviously those in control will do what's best (for themselves) and we are out gunned so to speak. I just read a book, "The Battle of Britain", by Michael Korda which outlines the defensive stance used to stave off the Nazi invasion by never committing their fighters in a large group. The Luftwaffe was convinced they were winning by attrition but finally gave up. I'm trying the same strategy :-)

Like everyone, I have an opinion, but I could be right and still lose big by any bold moves. That's something I cannot afford at my age.

http://bit.ly/bCxbvH

negotiations have already begun. And no GS is not the only beacon of conflicting interests. But one must fall to start the domino process.

Until hb&b is broken up, I am only buying on cascade down events like the 776 day. Without real reform I believe the equity market is going to have more frequent shocks, every 24-36 months.

We prob won't see all conflict of interest banished unless americans grow a pair and vote or revolt.

(a) 'Mr. E Trade' made it clear he was referencing a January 2010 research bulletin published by MSCI Barra titled 'What Drives Long-Term Equity Returns?'" (http://www.mscibarra.com)

(b) 'Mr. E Trade's' credentials as presented in the article:

John Russel (Rusty) Vanneman, CFA, CMT is the Director of Research for E*TRADE Capital Management, LLC.

Rusty has been in the investment business since 1990. Rusty is currently the Chief Investment Officer and Portfolio Manager at Kobren Insight Management, Inc. (KIM). Before E*TRADE Financial acquired KIM in 2005, Rusty was a Managing Director, Director of Research, and co-Portfolio Manager at KIM. Before KIM, Rusty was a Senior Analyst at Fidelity Management and Research Company's Strategic Advisors. Previously, Rusty was a Managing Analyst for Thomson Financial's Thomson Global Markets.

Rusty received a B.S. in management from Babson College in 1988, where he graduated with High Distinction. Rusty holds the Chartered Financial Analyst designation and is a member of the CFA Institute. He is also a Chartered Market Technician and a member of the Market Technician's Association.

I'm not an accountant. But I wouldn't necessarily write off his commentary as 'self-serving,' nor rank his ability to read balance sheets up there with graduates of ITT Tech.

MSCI Barra 'What Drives Long-Term Equity Returns' As referenced by Mr. Vanneman was self serving in that he is trying to sell you something. He is trying to sell the idea that an era of low growth (forecast by many for the Western Economies) doesn't imply an era of low market returns. He is correct but uses faulty and contrived time and valuation data.

What drives long-term equity returns? Read Ben Graham. That question has long since been settled.

I'm sure Mr. Vannerman is a decent young fellow who is simply trying to climb the ladder. The only thing I have against E Trade and many many other 'Capital Managers' is that little LLC designation.

No matter, the premise was false the way it was presented. As for balance sheet reading, the FASB should be indicted along with Moodys et al as co-conspirators for economic terrorism against humanity. Those idiots have killed more people than John Law!

As Goldman itself describes it:

SPG Trading desk started the off the quarter with long ABX "BBB-" risk to the tune of $1.8 mm/bp, hedged with "AAA/A" rated ABX indices and single name CDS. Over the quarter, desk reduced its long ABX "BBB-" risk by $1.3 mm/bp and increased their single name CDS hedges.

Bottom line: Goldman was very much net short mortgages in November 2006 (it would make $1 million for every bp change lower in absolute terms), and went all in to over $2.8 million by the end of February 2007. This should end all discussions on how the firm was positioned around the time the Abacus was being constructed and marketed.

Friday, 23 Apr 2010 09:07 AM Article Font Size
By: Dan Weil

The Federal Reserve is likely to resume quantitative easing after reversing it some in recent months, says star economist Nouriel Roubini.

The Fed expanded its balance sheet by leaps and bounds to fight the financial meltdown starting in 2008, buying securities and making loans on very easy terms.

That move is known as quantitative easing

Now the Fed has begun to reverse the stimulus, ending its $1.25 trillion of mortgage security purchases on March 31, for example.

“The federal funds rate is going to stay at zero until at least the first quarter if not the second quarter of next year,” Roubini told Bloomberg.

That’s because given the anemic economic recovery, deflation remains a bigger risk than inflation, he says.

“Chances are they (Fed officials) are going to resume quantitative easing, because if they’re going to have a back-up in mortgage rates or in 10-year Treasury yields, the last thing the Fed can afford in an election year is have a crowding out of the housing recovery.”

http://moneynews.com/StreetTalk/Roubini-Fed-Resume...

http://seekingalpha.com/article/200704-why-rait-fi...

FD: looking at buying some of this for a swing trade only

Grym, I appreciate your posts from the perspective of boots on the ground in America, keep em coming. On the other hand, unless Andrew Jackson rises from his grave, to suspend another bank charter, it will be business as usual.

In the war of 1812 Canada retaliated after the USA invaded Quebec and Ontario, we invaded Detroit, took a look around and pulled back up the Ottawa River, and Lake Champlain,

Bill has said this is a blog about social equity, I agree with him. Where else can a politician from Canada & the USA do three terms, 15 years and get pensioned out at the age of 55 and get 85K a year, at least that is what they get north of the border. In Canada you want to be a senator, not appointed by the people, but by the governing party, the real gravy train for whoever is in power at the time, well that is worth 150K and you do not have to show up for work. In Fact these accounts are not audible by the Governor General Of Canada, the David Walker equivalent in the USA

Fifteen years ago I went to a meeting where Charlton Heston was speaking to the Canadian Rifle Association when we were bringing down the new repressive gun laws in Canada.

It was one hell of a speech,in fact the best speech I have ever heard. He elucidated the point that politicians will do what ever is popular amongst their constitutes as long as they get a payout early, for their retirements, something that most of the population does not receive.

HE was ahead of his time, but 15 years later, his speech in Prince George BC is wringing home on both sides of the border I hope.

FD Long Gold, Silver, Oil, 357 Chevy.

"Beijing stopped the precipitous decline with a $586 billion stimulus program, announced in November 2008. The plan created a “sugar high” as the central government flooded the country with money, but resulting growth will be short-lived. The state’s stimulus plan favors large state enterprises over small and midsize private firms, and state financial institutions are diverting credit to state-sponsored infrastructure. The renationalization of the Chinese economy with state cash will eventually lead to stagnation.

But the economy could fail before stagnation eventually sets in. Prime Minister Wen Jiabao, to fund his stimulus plan, has forced state banks to create the greatest surge of lending in history. One state manager, Lin Zuoming of Aviation Industry Corporation of China, publicly complained last April that central government officials forced him to borrow the equivalent of $49.2 billion from twelve Chinese banks, saying he did not know what to do with all the cash."

http://www.worldaffairsjournal.org/articles/2010-M...

So one regional authority dared speak up about the flood of cash that he was supposed to use as stimulus. One can only imagine how much money was turned to non-productive ends. The author suggests that rigid political policy has failed to adapt Chinese economic growth to a necessary increase in consumption as the world can be expected to absorb less Chinese exports - it appears that the stimulus, when used correctly, was invested in infrastructure devoted to increasing exports.

sourced from Business Insider: http://www.businessinsider.com/this-wont-be-chinas...

Gary,

We may (I hope) begin to hear a growing use of another Heston quote, "From these dead hands!" if our Two-partying system doesn't shape up and return to the Constitutional form of government.