It's the Derivatives, Stupid! ~ The Risk Averse Alert

Wednesday, February 27, 2013

It's the Derivatives, Stupid!

Is it some strange coincidence the sudden concern for the Federal Reserve's solvency is intersecting Capo Confetti's meetings this week before a Congress perplexed about the insane budget sequester they, themselves, mandated, the likes now bringing these jellyfish to squabble over how best to piss on grandma and grandpa's grave cutting national defense and gutting social welfare programs their generation brought to government's capacity to "provide for the common defence" and "promote the general Welfare?"

Hardly! Yet revelation of an incompetent academic's handiwork certainly exposes how close we are to the trans-Atlantic banking system's chaotic convulsion. That much we can be sure of.

So, time has come to turn away from the parade and look at the band leader. Everywhere are hacks citing symptoms, while the root cause garners much too little attention.

It's the derivatives, stupid!

That is where unsustainable leverage lives. All the globe's fascist wannabes can turn their attention to whatever failing symptom they like, but all reveal leverage gone from bad to evil. Globalization is said to be "deformed" and that's why debt now appears unsustainable? No! It's the derivatives, stupid! That's how physical imbalances became so profound. That's how the economic field was sown with what is now called "excess capacity" by fascists the world over. There's no excess physical capacity! There's only a shortage of political will to tackle the mountain of work waiting to be done. As I have said all along, there's more work than you can shake a stick at. Obviously, the first thing to be accomplished is removing the scourge of Ivy League incompetents whose job it is to cover up the root cause of imbalances indiscriminately burdening every essential facet of modern society. It's the derivatives, stupid.

The mountain of public- and private-sector debt under which the globe today is buried simply would not have come to be were it not for King Ponzi, Alan Greenspan's endless rationalization of the wonderful risk mitigating qualities he claimed were the magnificent work of that market-driven, shadow banking system for which King Ponzi worked tirelessly to concentrate the Federal Reserve System's credit creation capacity during his reign as Fed chairman. How did the shadow banking system mitigate risk associated with credit it was recklessly creating, this largely for the sake of promoting purely speculative endeavors (while enjoying an infinite multiplier, no less!)? It's the derivatives, stupid.

The name of the game has always been, and still is, asset stripping for the sake of sustaining leverage. The only difference now versus pre-2008 is the game has moved into an ugly phase whose vicious impositions, indeed, were already preordained the minute King Ponzi took reign at the Fed. As if Greenspan's handiwork were not bad enough, the man's successor is proving worse than the disease. His cowardice emboldens jellyfish in Congress to think they are Greeks! All for the cause of asset stripping whose sole purpose is to further perpetuate leverage in whatever form the moment will facilitate.

Can there be any wonder following Monday's market throttling the tides seemingly have turned with Bernanke's apparent success bamboozling a gaggle of lepers masquerading as leaders? None dared challenge the root cause bringing Treasury to parody its Weimar predecessor! It's the derivatives, stupid. Bernanke is protecting these at all costs, while at the same time claiming their beneficiaries are no longer "too big to fail," as these institutions now, supposedly, are captive to the "unwind facilities" built into Dodd-Frank. Yeah, right, we'll see about that, and probably just in time for this useless coward to be driven out of town on a rail when his term as Fed chairman expires next January.

The NYSE McClellan Oscillator provides both substantiation for the Elliott wave count presented yesterday, as well as possible insight into the market's likely technical state once currently forming wave 4 of (c) nears its completion.

Trend exhaustion signified by a presumed Elliott "diagonal triangle" (aka "rising wedge") forming wave (c) off early-June 2012 bottom is confirmed by both the McClellan Oscillator, as well as the Summation Index, while confirmation of the rising wedge's component waves thus far formed is presented via the latter with the Summation Index during formation of wave 3 of (c) rising above the level it reached during formation of wave 1 of (c), thus objectively displaying an Elliott third wave's typical dynamism.

Likewise, we might anticipate the state of various McClellan measures during current formation of wave 4 of (c) to be worse than their respective states during formation of wave 2 of (c). Projected levels each McClellan measure is likely to fall to are indicated above in red markup. As you can see, we have some way to go before these projected technical levels are reached. Thus, too, anticipation of a fairly range-bound trade upcoming, whose upside could exceed the peak of wave 3 of (c) set at the open on Wednesday, February 20th, likewise finds substantiation here. Be that as it may, though, we might reasonably assume hopelessly bankrupt derivatives junkies shot their wad today. The ominous portent of Monday's negative outside day still looms large, so we might safely assume there will not likely be much follow-through.

Word on the Street
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