Deception: The New Normal ~ The Risk Averse Alert

Friday, March 12, 2010

Deception: The New Normal

Funny how major indexes like the NYSE Composite and the S&P 500 are banging against levels last seen the week Lehman Brothers declared bankruptcy ... and now we learn, lo and behold, Lehman was known to be insolvent weeks before the firm went under. (Today's "Word on the Street," adds real zip to the story.)

Does anyone really think Lehman stands alone in its deception? Let's face it, more likely is the probability misrepresentation is epidemic. Such is life amidst systemic bankruptcy.

Likewise, the globe's still highly correlated, grossly leveraged financial arrangement whose undoing began in 2007 has no salvation, either. The lender of last resort can only be drawn in deeper. Exit strategy? That's laughable. There's still a growing mountain of bad paper whose backing will be required when some new swindle sets in motion further consolidation of the financial system.

Thus, too, gutting health care and decimating state and local budgets certainly reveals all levels of government only the more willing to further back a bankrupt arrangement. (For the record: were our financial condition otherwise, the need to savage government would not be quite so urgent.)

Yet stringing out the fantasy that, first, a firm, and now the entire global financial system remains solvent has its benefits. Case in point, Barclays, picking up choice Lehman assets for a song. One can only imagine what host of other choice assets are begging to be stolen via the next wild, upcoming swindle.

company chart (C)

Why, there's one among many possibilities. How long has Citigroup and its dominant, international, consumer-based banking business been under attack? I know. It's hard to imagine in this environment other financial firms hungry for Citigroup's vast deposits ... not!

You certainly see something of a battle in trading of shares of Citigroup since March '09 bottom. Relative strength's noteworthy collapse leading to Citi's massive secondary offering in December '09 strongly suggests this stock has yet to see bottom.

Then, too, considering the depths to which Citigroup fell ... one is supposed to believe its exposure to risk is profoundly worse than that other, large, deposit-taking institution on Wall Street: JP Morgan Chase?

Suddenly, with the Lehman Brothers revelation JPM's "strong balance sheet" becomes so much talk. Truth of the matter, too, must certainly lie deeper than some fake "stress test" can reveal.

Indeed, did the stress test of 2009 take into account the potential collapse of the European banking system? Or, more immediately pertinent, just its growing prospect and what impact this might have in key markets?

One can only imagine what collateral fear might develop were Citi soon to retest its March '09 low. The Elliott wave count you see above suggests retest is a credible, near-term possibility, too.

The prevalent, mistaken sense that, some semblance of "normalcy" established over the past thirty years might soon ascend more likely indicates profound turmoil and rivers of tears are yet in store. In fact, not until the very prospect of "normalcy" is widely scoffed at will we likely be near a 1932-like bottom. We are nowhere close right now.

So, revelations involving Lehman Brothers raise odds deception facilitating further asset grabs more than likely is the true, new normal. Lord knows (as does Hank Paulson), it is by chaos that, things get done these days. And judging by trading in Citigroup, trouble just might be brewing.

Fast Money
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