Posted by Eric Solis on January 28, 2010 under Stock Market | 
A dead cat bounce is a market that retraces half of its decline before retesting lows. When a market falls at the speed and the magnitude that this market fell, the resulting dead cat bounce can and in fact does look like a renewed bull market. But the fact is that a lot of Dow points to the upside does not change this probable reality of a continued bear market.
Simple math: If a market has rallied 3500 points or 50% off the bottom relative to a 7000 Dow coming off of a high of 14000, one needs to keep in mind that 3500 points relative to the actual starting point of 14000 is only 25%. So the markets 50% rise off the bottom is a perfect retracement to fill the gap and is a dead cat bounce. The “rally” we have experienced over the past year and a half has been a technical correction based on the traders understanding of charting and back filling gaps.
The FUNDEMANTALS (ex government spending) of the economy have not improved and the market is way over extended based on real economic activity which has actually deteriorated further. The way to protect investment capital going forward into 2010-2013 is to substantially reduce your exposure to equities.
Posted by Eric Solis on January 22, 2010 under Banking |
Jan 22, 2010
The Federal Reserve, Treasury and Banks- modern day bank robbers
The billions of supposed profits earned by the banking industry in 2009 is nothing more than a transfer of wealth from the American people to modern day bank robbers which may well be foreign governments, powers and funds. Folks this is the fleecing of America happening right before our eyes.
Here is how the con works:
1. As the Federal Reserve and Treasury continue to take hundreds of billions of mortgage backed and asset backed securities, off of the balance sheets of “banks” they are essentially absorbing the loss that these “banks” would have been writing off in 2009 instead of posting a profit (the profit belongs to the American people). The profit/loss is a direct transfer from the bank to the Fed and Treasury.
2. The TARP money that was loaned to these banks was a shill to take our eyes off of the real fraud that was being perpetrated on the American people. This money is equivalent to the money in the register (TARP) vs. the money in the vault (i.e. banks have leveraging the full faith and credit of the Federal Reserve and U.S. Treasury combined).
3. The next part of there plan is FREE MONEY. The Fed loans money to it “members banks” at 0% and then its members turn around and buy the Treasury bonds that were issued to bail them out and then our Treasury pays them 5% interest on the money we loaned them.
Imagine if you could borrow money from your friend at 0% and then loan it back to him for 5%. WHAT A DEAL!!! (BTW your friend deserves a lobotomy). But this is exactly what our non elected officials have and continue to do while elected officials stand by and watch.
4. Step four, Convert from an investment bank to a commercial bank. Now, investment banks like Goldman Sachs and Morgan Stanley are backed by the full faith and credit of the US Government and even more important, they have unlimited access to borrowing through the Federal Reserve “bank”. Prior to this these pirates had to depend on the capital markets for their liquidity and short term cash requirements. The capital markets are institutional investors that are savvy and know how to read a balance sheet and measure risk. They held these investment banks accountable (sort of…in the end their all scratching each others backs). That is why commercial paper and other money market instruments seized up when the S#$@ hit the fan. Sophisticated investors would no longer lend these guys money. So where did they turn? They went to the so called “lender of last resort” the Federal Reserve and Treasury who not only agreed to loan them money, but they did for nothing and they also agreed to take all of their bad investments onto the balance sheet of Hedge Fund USA.
5. Step five is involves allowing these same banks to exchange toxic assets for Treasury bonds and then borrow against those treasuries at 0% so that they can lever up and buy more and more and more. What this means is that the banks took non performing assets that were in default and for all tense and purposes worthless and exchanged them for government bonds paying 5%. Then they took those bonds and placed them as collateral with the Federal Reserve in order to borrow more money so that could buy more bonds with the proceeds. With these new bonds they are able to repeat the cycle over and over again at will. Remember how we read that many banks had levered up 10x against assets on route to getting into this mess? Well they have done the same thing using Treasury bonds. Lets look at the math:
$1000 non performing assets creating a loss on the books of the bank of $800 to be written off in 2009.
Exchange the NPA to $1000 in US Treasury @ 5%.
Income $50
Bank then places this bond as collateral for a loan of $1000. Bank buys another bond.
Income $50
Loan 0%=0
If this is repeated 5x the total interest earned From Treasury Bonds= $250
Interest paid on all loans at 0%= $0
Annual Government guaranteed yield? 25%
If we carry this leverage out to a 10x the yield is 100% a year. THEY GET ALL OF THEIR MONEY BACK IN ONE YEAR!!!
Why do you suppose the banks are no longer interested in being in the business of loaning money to business and consumers? Why should they when the government is willing to give them guarantees of this sort, while insuring them against loss?
This is called “crowding out” and is perilous sign of things to come. The government is crowding out business and consumers because they need the banks to lever up with Treasury bonds, to pay for all of the bailouts of same. It is a virtual circle created by our government, Treasury, Federal Reserve and its member banks.
AND WHEN THE MUSIC STOPS ON THIS SCAM, THE PUBLIC IS ON THE HOOK TO COVER THE LOSSES AGAIN. REMEMBER…THESE “BANKS” ARE FDIC INSURED!!!
This is why the Fed is in a quandary to raise interest rates. When they do this whole thing will unravel and everybody will head for the door at the same time.
When it begins to unravel, interest rates will slowly begin to rise, which will push up the cost of carrying the trade and then this increase in rates will accelerate. At the point that the cost of the money exceeds that rate on the bonds held as collateral, the yield drops to zero.
But here is the MAJOR problem; at some point the yield on this trade will drop to zero and the positive arbitrage carry will invert and go negative. And when this happens, the impact on bank earnings will be sudden and irreversible. Banks will find themselves holding government debt that is no longer worth what they paid for it nor what they owe on it. A $1000 face value Treasury with a 5% interest rate may only be worth $500!!! Now what do they do??? BILLIONS OF DOLLARS WILL NEED TO BE WRITTEN OFF AGAIN, UNTIL ALL OF THE BANKS EQUITY IS GONE. AND THEN THE GOVERNMENT WILL NATIONALIZE THEM AND THE AMERICAN PUBLIC WILL OWN NOTHING MORE THAN A LIABILITY.
What is happening between these two points as banks post profits and pay outlandish bonuses to themselves, is that the billions being distributed by and to banks as “profits” is nothing more and nothing less than a criminal act of treason and a confiscation of our nations wealth by and through “banks” committed by the Federal Reserve, Treasury, the US government.
