RF's Financial News

RF's Financial News

Sunday, July 12, 2009

This Week in Barrons – 07_12_09:

The FED is a private institution that is above the law and accountable to no one (not even the President of the U.S. can see their books). Ron Paul recently introduced a bill where Congress could finally audit the FED. Well this has the FED freaking out. BUT surprising the bill did get by the House and now goes to the Senate. Now with Obama's popularity is falling like a stone, some senators are wondering if they should be connected so closely to Obama and the FED. What’s interesting is that the FED Vice President Donald Kohn – on Thursday – warned that if this bill goes through - the economy would suffer massively. Now you have to ask yourself – Why? Mr. Kohn goes on to say: “this bill could cast a chill on monetary policy deliberations by making officials nervous as ideas they throw around behind closed doors could become public. Any substantial erosion of the Federal Reserve's monetary independence likely would lead to higher long-term interest rates as investors begin to fear future inflation.” Now, why would Mr. Kohn fear inflation simply by us viewing their books? Well, because the FED is printing money like it’s going out of style! If we were to actually see the true amount of their printing, the true destinations of all that money, inflation would be pegged at 14%+ at least and send the world into a very dismal place.

Does the FED equal Goldman Sachs? Potentially some of you have read the article in Rolling Stone magazine about Goldman Sachs (GS) and how they've raped the America's taxpayer for the last 120 years. Now, let’s look at some Goldman Alumni: Jim Cramer, Timothy Geithner, Henry Paulson, Zoellick (president of the World bank), countless White house Chief of staff's, Jon S. Corzine (who has bankrupted NJ) – many more. Now, could it be possible that they used any of their influence to obtain inside information? But what about the matter of last week of the FBI arresting Sergey Aleynikov, a former VP at Goldman Sachs. Aleynikov uploaded secret algorithms used by Goldman Sachs that run automated stock and commodities trading. The data was uploaded to a server in Europe. Shortly after the deed was done, Aleynikov resigned from his $400,000 per year job at Goldman. Now, I bet that this is much more than your garden-variety techno theft – so let’s connect a few dots. Two weeks ago I reported to you that Goldman was set to pay out the highest bonuses in their 140 year history. This at a time when the economy is in the pits, Wall Street has laid off a zillion people, the average returns are negative, and the banking industry was pleading for bail outs or the world would end. So how did they amass these bonuses? Well it's because they are such tremendous traders that there were many days they were making 100,000,000 a day. Yes you got that right, one hundred million in a day. Now this is the same outfit that didn't see any troubles in the mortgage market, CDO's, Swaps, or derivatives, yet they were making more money than any time in their history. Then Aleynikov hit the press which read: "The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways," stated U.S. Attorney Joseph Facciponti. Well – since Goldman built it – we must assume that they have that ability – yes? At the same time the market published a report about program trading – with Goldman leading the category each week doing 400% more program trades than their next rival. The next report (the very next report) Goldman wasn’t even listed. They went from being the top dog leader to not even being listed. Then the market came out and announced they weren't even going to post the list any more, it wasn't "valuable" any longer! Finally - last week, the NYSE had to keep the market open for an extra 15 minutes after the official close to "work out" some irregularities. OK, so Goldman is making billions in the worst recession since the 30's. They top the charts for program trading. Their program is stolen. The Attorney General says it has the ability to manipulate markets. Goldman suddenly disappears from the program trading charts, and then the charts are instantly discontinued. Then the market stays open longer to fix a glitch. Now what if because of Goldman’s particular situation of being a special liquidity supplier to the NYSE, and their inclusion in the Presidents working group on financial markets, their new hot software could "sniff" out stock orders milliseconds before the order is executed, and then their black boxes fire off just ahead of it? In effect they would be able to sneak in just ahead of a legitimate order, and scoop profits and be gone all in the space of a single second. Isn’t that what Aleynikov stole – and then they had to shut down the reporting and ‘disconnect’ the software from the exchange so that Alynikov’s buddies couldn’t muscle in on the Goldman Gold-Mine!

The Markets:
America is bankrupt. "According to the CBO, over the next SEVENTY fiscal years, the federal government will NEVER have a surplus. Rather, the United States will continue to suffer massive, escalating, multi-hundred billion dollar losses (deficits) each and every year for the next SEVEN DECADES, which is when the budget projection stops.”

So Goldman rapes and pillages us while The FED remains locked behind closed doors, and the U.S. is broke beyond repair, to the point where if taxes were 100% of personal income the books wouldn't balance. To make matters genuinely more abstract and absurd, Obama wants to push for universal healthcare, costing trillions we don't have. Yet despite all this, for the most part the American people aren't awake yet.

But the point is simple – the economy will NOT get better. Sure there will be bumps and glimmers of hope, etc, but in the long run, we're on a headlong rush to the ultimate depression.

As far as the stock market goes, here lies the great dichotomy. The market belongs at DOW 4000, but fights daily to move higher. You see the manipulations; you know about the PPT and Goldman, JPM suppressing silver/gold, and buying futures when it suits them. You see companies reporting that revenues are down 50%, but once again their earnings were "better than expected”. If you believe that the market’s current purpose is to punish the most people - then you’d love to see a really big fast sharp sell off that really scares people out – and that would signal your buying opportunity. The problem here is that Obama and the boys are pumping so much money into the system to give the appearance we're going to make it, each good attempt at the "big" sell off gets short circuited.

That said however, I’m hearing more and more "bearish talk" on TV, and therefore we're probably getting closer to a short term bottom that reverses higher soon. We want to catch that next wave up for sure, but be patient and let it develop. Above all remain safe, use smaller positions and move "fast". We're coming into the strong part of earnings reporting season, and it will be interesting to see how it all gets "spun". This "ain't your daddy's market" any longer.

- we’re holding the GDX (a basket of gold mining stocks) with No Stop
- we’re holding NGD (a gold miner) from $2.59 and will be doubling up on Monday with this
- we’re holding MOO (agricultural business ETF)
- we’re hold XLK (a technology (minus healthcare) ETF)
- we’re holding IPI (a potash hold – again in the agricultural theme – we’re underwater here)
o we’re underwater on a couple – just thinking that there’s an easier market move UP and Down at this point

Remember the Blog http://rfcfinancialnews.blogspot.com/

Until next week – be safe.

R.F. Culbertson

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