God Smack: A Forboding Zenith ~ The Risk Averse Alert

Thursday, January 07, 2010

God Smack: A Forboding Zenith

If relevant authorities truly believed American financial markets were among the world's deepest and most liquid, then why would they be compelled to resort to fraud in order to mask some other reality? Were this oft repeated characterization of a day gone by in fact still true — were American markets, indeed, deep and liquid — would not substantiation of the market's continued viability in the face of widely acknowledged systemic stresses require utter transparency?

Of course it would!

Yet concealing revealing details about extraordinary threats to systemic solvency has become standard fare. Not only that, but because this now is occurring at the very top of our financial system's organization chart — the lender of last resort — suggests everything underpinning the financial system is vulnerable to but a child's exclaiming, "The Emperor has no clothes!" (metaphorically speaking, of course).

Indeed, this might have something to do with the likes of Senate Banking Committee Chairman Christopher Dodd suddenly announcing his retirement once his term concludes at the end of 2010. Apparently, Senator Dodd arrived at this decision...
"...early on a cold Christmas Eve, an hour after voting to overhaul the health care system, when he visited Senator Kennedy’s grave at Arlington National Cemetery."
—"Citing Tough Race, Dodd Steps Aside" (NY Times, 1/6/2010)
One can only imagine the pressure Team Fraud exerts on the man, on account Dodd is...
"...one of the top recipients of millions of dollars in donations from commercial banks and the securities industry."
—"Will the Real Chris Dodd Stand Up?" (NY Times, 1/6/2010)
Then, to be part in a scheme to send grandma to an early grave (IMAB = T-4; proof is in how a bursting bubble ever came to be), all to free up capital necessary to keep alive taxpayer subsidy facilitating an irreversibly reckless financial industry, well, this just might have been too much for the son of a renowned Nuremberg Tribunal prosecutor.

So is the genesis of my first prediction for the year 2010...

The Obama administration, and its toxic brew of Team Fraud Advocates will not be intact by year end. Political cover at the very top will be thrown to the wolves. The trip Senator Dodd made to Senator Ted Kennedy's grave site — the very fact this story was woven into Dodd's resignation announcement — was intended to send a message: Democrats in Congress better soon take an opportunity to mend fences with the other side and get in the spirit to hang this taller, tanner Herbert Hoover Jimmy Carter clone out to dry.

Remember: from here on out, until further notice, it is shark on shark.

No more a ridiculous prediction than the hundreds of others you probably have seen. Provocatively credible, though, for this is politics.

NYSE weekly

And this is a tulip bubble...
"Tulip mania reached its peak during the winter of 1636-37, when some bulbs were changing hands ten times in a day."
Review: When the Tulip Bubble Burst. TULIPOMANIA—The Story of the World's Most Coveted Flower (Business Week, 4/24/2000)
What do you think all that volume is about?

Such is how...
That which has been is what will be,
That which is done is what will be done,
And there is nothing new under the sun.
Ecclesiastes 1:9

(By the way, technically speaking, it is a sideways trading NYSE accompanied by much elevated volume, together, supporting a "tulip bubble" thesis. So, yes, to the effect time in levitation has been extended suggests American capital markets have remained deep and liquid, enough at least for a real-life Wile E. Coyote routine — suspended in mid-air after having run over cliff's edge — or so it appears anyway.)

Fast Money
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archer said...

Thanks for your well written and thoughtful commentary.

You have remained convinced this market will break, and I believe it has to, and badly, but "someone" seems to be doing a very good job of pushing it higher and higher. Friday was incredibly blatant tape painting, and the media is keeping up bullish talk. Bernanke probably will not withdraw liquidity. I wish we'd get past this phase, but I don't see a reason why they can't keep this going a LOONG time, ex some outside shock (geopolitical, environmental, etc).

Anonymous said...

"Someone"? -- "They"? -- Conspiracy Theorists of the world unite.

It's not a mystery why this market is going up, let me explain...Or rather, let Bill Gross Explain:

To paraphrase: Fed Buys Assets/mortgages/etc, Asset managers sell them to the Fed and get cash, they deploy the cash elsewhere: To repair their balance sheets, buy fixed income, and/or buy (you guessed it) - Equities...

And when the spigot gets turned off the equities fall back. How far, we will see...

TC said...

@archer: All things technical continue to indicate building weakness underlying the market's advance off March '09 bottom. Being that a C wave has been forming since bottom, it is no surprise pronounced resiliency is being demonstrated (wave C off March '09 bottom is completing wave (B) from November '08 bottom to form an A-B-C "irregular flat"). Just how soon wave C of (B) might end has been (and continues to be) difficult to estimate (having been made all the more so particularly since late-October '09 when a notably low-volume advance took major indexes to new highs, post-March '09 bottom.

I previously have suggested an Elliott "rising wedge" might be forming in the 5th wave of wave C of (B). Yet even to this day I am not convinced whether this special Elliott Wave form (appearing in the final wave of a move in a given direction) is, in fact, unfolding.

However, I remain of the persuasion that, waves 1 - 4 of wave C of (B) unfolded through the early-July '09 low, and that wave 5 of C has been unfolding ever since. Obviously, this 5th wave is proving the extended wave among the three impulse waves (i.e. waves 1, 3, and 5) in a 5-wave sequence.

One thing to consider per the challenge maintaining patience here...

If you look at the counter-trend rally from March '08 - May '08 in relation to the market's decline from October '07 - March '08, then look at the counter-trend rally from March '09 - present in relation to the market's decline from October '07 - March '09, you will notice both counter-trend rallies covering about the same ground as was previously lost. Thus, I suggest the current counter-trend rally might be nearer its end than seems likely were you otherwise swayed by the ridiculous banter in the financial media (which, indeed, is becoming OFFENSIVE given the degree to which fraud is becoming such a mainstay.

Did you happen to see consumer credit dropped for a record 10th straight month and by a record amount(!) in December? Yet it still is acknowledged the U.S. economy is 70% consumer-based. So, how could this consumer credit contraction support a positive equity outlook?

Did you read my post dated Sunday, January 3, 2010 re: David Goldman's Inner Workings blog? You should check out some of his economic-related commentary re: the state of commercial lending and small business expansion. All the BS coming from our more accommodating, pliant financial press is put in perspective, and their job better done cultivating suckers is readily exposed.

TC said...

@anonymous: Check out Bill Gross Seen Sweating Blood in His Garden of Gethsemane.

Broader perspective Gross' current piece might have chosen not to emphasize is the simple fact that, bubble dynamics of the past 10+ years (particular since LTCM in '98) -- largely perpetuated via the [still dead] securitization market with much support from the GSEs -- effectively increased market volatility in both directions. In other words, the increasing gobs of liquidity thrown at successive blowups have done nothing but ensure the next inevitable blowup. In other, other words, speculative capital travels on a two-way street, and the direction it takes at any given point in time is always the path of least resistance.

The defunct Peloton Partners offers an instructive lesson on this account. All their sophisticated models suggested depressed mortgage securities in which they were speculating were relatively more secure than sub-prime securities that, at the time (going into early '08) were imploding. Whether they were right or wrong, however, is not what led to their folding. Instead, it was the fact their holdings were vulnerable to attack (at someone's profit, of course, largely aided by generous availability of credit). And this was something their position simply could not withstand.

I would submit the extent to which insolvent securities still clog the global financial system, the lilliputian [and technically insolvent] Fed simply hasn't the capacity to absorb, and so, like Peloton Partners, their position all too likely will come under attack sooner rather than later. I dare say Bill Gross knows this, too (as remarks he made in a prior piece cited above strongly suggest he is well-aware of the present arrangement's profound vulnerability).

TC said...

@anonymous: The point I made in reference to NY Fed President Timothy Geithner instructing AIG to conceal relevant details about its CDS payouts was not intended to infer conspiracy. Rather it points to an act committed at the very top whose consequence undermines the credibility of regulatory authorities. This I simply perceive a confidence-destroying action whose consequence cannot help but embolden both profit-minded traders made all the more aware of the existence of vulnerabilities worthy of attack, as well as a Congress likely to increasingly recognize the need to permanently remedy systemic threatening vulnerabilities (i.e. via bankruptcy re-org) exposed by the Fed president's actions (never mind the fact much of the Congress already is extraordinarily flamed about the fact the Fed acceded to AIG paying out 100 cents on the dollars to honor their CDS liabilities). Indeed, with elections approaching, were systemic threats to continue building Congress might become of the same mind as Holland's authorities were following the tulip bubble's bust, and leave the sharks holding the bag and the blame.