Read Scott here on iBankCoin and also at http://www.createcapital.com/
Joined Jan 19, 2010
717 Blog Posts

Equeeze Me?

Lemme get this straight. Banks are the leadership group this year with BAC up 15% this week because Obama will grant mortgage relief to those who own a home with an Agency mortgage? If you live in a home financed by FMN/FRE and are current on your mortgage, you will be refinanced at today’s low rates, no questions asked. Nice!

But how does that help big banks? They are not at risk with any  mortgage held by FNM/FRE. How can they be? Indirectly, does it free up new mortgage money? Does it put to bed any outstanding bank owned or serviced mortgages? Not that I can see.

Maybe it will help some mortgaged homeowners, but you have to be current. And from what I understand, there are 6 million late or delinquent mortgages and 11 million underwater mortgages.

Maybe it is just the January effect at its finest.

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Suspend Your Disbelief: Part IV

Welcome to 2012. We are now in the Academic-worthy fiscal and economic policy of “Extend and Pretend” and it is still nowhere near over. When it is finally all said and done, it will be the template for business students around the world, for decades to come.

Since March of 2009,  some 34 months ago, the government “came to the rescue” of the frozen financial system and major banks by changing the banking rules and choosing to take the risk that the markets refused to take. Hence the saying “private gains and public losses”. The Capital Markets responded as expected, recovering almost all the losses from the now-defunct Securitization and Housing Boom. The money went to Money Heaven yet was replaced by newly minted digital cash created out of thin air. Never in history has such a thing been done but that is what the Powers that Be decided must be the case.  So by creating trillions of new dollars, our economy can go along its merry way, with most participants oblivious to the reality of the situation.

Lately Europe has been in the same position but without the luxury of the ability to print new money as organically as we here in America, the land of the free and the home of the brave. So they create an “entity” and it somehow gets funded with a quick trillion. Problem solved. But not really.

These unprecedented monetary actions have many anticipating a giant reset of the system; a crash when reality is finally and unmistakably recognized. But so far it has not happened. Funding goes on, markets open and trades get settled (mostly). The newly minted cash goes right where it is directed, the closed loop of banks and investment assets, and it stays there never to escape. With the Fed’s zero percent interest rate policy, the cost of cash is effectively zero for those Primary Dealers who can borrow it. Reminder: nobody can borrow at zero percent but the Primary Dealers, so the big money loop stays closed.

Today the bond king, Bill Gross, publicly stated the truth about the bailouts and stimulus and called it what it really is; A Ponzi scheme. But does the truth matter to the markets? Not one iota. The liquidity of newly minted cash and the calendar preceed the gains and losses that happen in the marketplace. In fact almost nothing of  a fundamental nature can move the market. It is simply the next phase of the policy of  “Extend & Pretend”, and the marketplace buys it hook, line and sinker. Same as it ever was.

Interestingly, there has been a substantial change in the nuts & bolts of the equity markets, with defensive and dividend issues leading to the upside while materials and commodities wait for the next round of stimulus to begin its next advance. And all the while, the shiniest bauble, Apple, adds billions in market value every day, day after day and week after week. It serves to distract everyones attention from the reality of our situation.  Overall market volume continues to drop and roughly 95% of all gains come from the pre-market and a gap up at the open. Some say it is being driven by the “strong domestic economy”. That is a false assertion as any strength is due to the back-ended holiday season and will disappear soon enough. And oil prices? Don’t ask. That is the stuff of another piece.

So, my resolution for the New Year is to suspend my disbelief once again and force myself not to bet that reality will overtake fantasy anytime soon. My greatest investing fear is that one day we will wake up and find that it has.

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2012 Predictions

1. Apple TV is a dismal failure. People don’t want their TV’s fucked with.

2. Special Prosecutor is named for Congressional/Federal Reserve Insider Trading violations. One crazy ex-Congressman will take the fall for everyone.

3. House prices drop 20% from December 2011 to December 2012. They drop about 10% every fourth quarter since 2007 but will fall during the year too as foreclosures accelerate.

4. A huge French or German will go bust but every drop of evidence that it existed will disappear, including its employees.

5. Stock market liquidity and volume dries up even more as even the machines trade less. Average daily NYSE volume drops to 600m shares a day.

6. The world does not end on December 23, 2012.

No price targets for the market or individual stocks this year.

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The Fast & The Furious

So, have you “enjoyed” your investing year?

The winners and losers have come in record time. Some have come on no news. And the liquidity that usually prevents big swings has been non-existent. Fascinating that many stocks have moved 20-60% in a few days or weeks and the major averages have been locked in a relatively narrow range and are unchanged for the year.

I for one am glad to see the favorites finishing the year leaping to test their yearly highs. But the backdrop of the macro situation has never been worse. Dr. Fly highlighted it in an earlier post when he revealed his “Mormon Streak”.

That said, as far as the overall market is concerned, the worse things look and feel, the higher the market will go. And if you think the numbers are not-so-hot now, just wait for next quarter! The reason for the market to continue its rise? “Investors” (if I may call them that) must put the bank-locked liquidity somewhere other than Treasuries.

And Santa came just in time, last Tuesday.

The action has been faster, thinner and more wild than at almost any time in history. Yet somehow the averages remain just under your favorite sell-side strategist’s year-end target. Amazing how that happens.

The bottom line (and who doesn’t want the bottom line!) is that you don’t need to worry about a thing because there is more money available to banks and Sovereigns (U.S Government included) and Apple than at any time in history. Defcon numbers be damned!  Money can paper over any problem forever. Right?


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Today is the Greatest Day of the Year…

  • Everything about today is representative of this entire year.
  • A year that witnessed the movement of about 1400 SPX points. Yet the indices are stuck in a 100 point trading range and are flat for the year.
  • A world where one day Europe and the Euro are toast and then are saved. 
  • A world economy that would be shrinking if not for the endless leveraged stimulus and bailouts from insolvent Central Banks.
  • A banking system that is on the brink of collapse yet is more stuffed with liquidity than at any time in history.
  • An economy that is wallowing deep in the trenches and barely muddling along, yet is somehow stronger than expected.
  • Commodity prices that have almost no bearing on actual supply and demand forces of a free market.
  • An environment where interest rates are being manipulated ever-lower to their eventual target of zero, destroying all prudent savers. 
  • A market that is subject to the most extreme and historic velocity of  point swings and market internals yet remains stuck.
  • A market that trades just 15% from the all-time, Shadow Banking, Housing Bubble highs, yet endures multiples of the debt that was outstanding during those earlier times.
  • A market that deteriorates for weeks, dropping  3% and then gaps higher by 3% in one morning bailing out the riskiest traders in a mysterious “Magical Mystery Rally”.

Like so many other times this year, the only way to have profited from today’s 300 point rise would have been to buy the deteriorating and lopsided market. The lessons are that you continue to be trained with the carrot and the stick until you are hypnotised into believing that there is only one outcome to any market endeavor.  

Thanks to Uncle Ben for his wonderful present for the first day of Hanukkah!







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