CNBC Rant by Rick Santelli

This is one aggressive rant from a major news source, CNBC by Rick Santelli.
But then again, who cares, summer is here, time to think happy things.  For those who want to ignore the negative, click here for funny videos.

Skip to 3:30 into video.

How deep does the rabbit hole go.

JP Morgan is ranked as worlds largest publicly traded company, according to Wikipedia, and US largest bank.

It is estimate the the global GDP 61T total output is exceeded by JP Morgan's off balance sheet investment exposure by topping 70 Trillion.

A few weeks ago, the mass media reported a 2 billion dollar loss linked to "bad trades".   Now Bloomberg reports "JPMorgan CIO Swaps Pricing Said To Differ From Bank".

On the surface this tells me that the amount of money and liabilities are so great, the the "pennies on the dollar" of risk is what these companies are reaping money from.  But how can these companies ensure a positive outcome?  Why manipulating the market of course.  And since the markets are unregulated, I am not even sure it is illegal.  Lets assume it isn't illegal, what it does mean is the valuation of these off-balance sheet assets cannot be valued correctly.

And that is exactly what Bloomberg is suggesting, that the assets are manipulated and valued in a questionable manner.  Combine this with the change in FDIC insurance laws in place since the great depression to insure ONLY low risk savings accounts.   Now the FDIC is exposed to higher risk assets.

UPDATE: Market Ticker post on this topic, top quote:
The net amount of credit-swaps protection sold by JPMorgan soared eight-fold to $97.4 billion in the three months ended March 31, Federal Reserve data show. The bank held total credit swaps contracts on $6.05 trillion, the biggest among the six-largest U.S. bank holding companies, the data show.
So if you're making a "mistake" in the value of those positions by just one percent you would show a $60 billion difference against reality -- or roughly half of JP Morgan's market capitalization!
UPDATE:  Senator Mike Lee Luxury home who's valuation dropped below what he owed, was absorbed by JP Morgan.  I am not sure what the difference is between this and giving $$ to Mike Lee.

Referring back to 2008 to today, I now believe we have crossed over into realm of "all in" for the US economy and currency crisis.  What could have been dealt with decades ago has been continually kicked the can into a larger disaster.   Now the only question is how this plays out.

For more on JPMorgan, the FFIEC removed the public documentation on JP Morgan's finances, but you can still find it on google's cache here.

What I have issue is the off-balance sheet casino that the US entire financial system is based upon.  JP Morgan's off-balance sheet direct dealings tops over 6 trillion in accordance to federal PDF.

I am adding this to financial Ground Zero, as this is cracks in the largest ponzi scheme ever, off balance sheet liabilities totaling over 200 trillion across US banks.   And nothing material has been done since 2008, so it is safe to say nothing will be done until after there is no other choice but to reconstruct from the next disaster.

Currency Reform, not using Gold

I am NOT for reforming currency flows by moving to a gold based standard.

A gold base standard is changing from money creation from central banks to money creation by metal miners &  central banks.

Such "reform" is smoke and mirror of no reform.  In fact, it centralizes money creation into countries that have large gold mining producers and cripples countries without any gold mining.

I am in favor of freeing money creation from the few to the many PROVIDING the methodology is sound and prevents devaluation of currency.  This is a tricky issue, and I plan to cover it eventually as a follow up to my "what is money" series.

In any event, this is a great watch from Bill Still, someone who I have been covering for quite a while.
He covers his concept of true currency reform, granted some large gaps in the solution.

Truth on Money from Canada

This video is awesome, Paul Hellyer talks directly on what is root cause, money creation with interest rates attached.  Also how the entire financial system is fraudulently high risk currently.

I don't agree 100% with everything said, but much more so than reverting money to be made of gold or current system trajectory.  Please see my series What is Money for my view of money.

Goldman Sachs accused of shorting more shares than available

Rolling stones reports that Goldman Sachs made available 107% of the shares of Overstock.com available to short.

A couple of ground rules should be explained.  Rule 1 is stocks CANNOT be shorted unless you "borrow" someone's existing shares to short with.  so 107% is impossible unless breaking the law, intentional or not.

Second, shares that are held by others CANNOT be used to short unless the stock is made available TO short.  Typically investment firms, mutual funds, etc all lend their shares to be short.  So I find it hard to believe that legally 100% of the shares where available to short, since SOME shares would not be eligible for shorting.

Since the start of the financial ground zero events, I do not know of any prosecutions due to the actions by any major investment firm stakeholders.  I am not counting side people like Bernie Madoff, they are small time outright crooks that are easy to take on. (and should be)

My FAVORITE quote is:
"Fuck the compliance area – procedures, schmecedures," chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales. 

We also find out here how Wall Street professionals manipulated public opinion by buying off and/or intimidating experts in their respective fields. In one email made public in this document, a lobbyist for SIFMA, the Securities Industry and Financial Markets Association, tells a Goldman executive how to engage an expert who otherwise would go work for “our more powerful enemies,” i.e. would work with Overstock on the company’s lawsuit.

"He should be someone we can work with, especially if he sees that cooperation results in resources, both data and funding," the lobbyist writes, "while resistance results in isolation."

Since this is a clear case of someone, somewhere, intentional or accidentally breaking the law in trading stocks, I will wait for the prosecution.  Also I will wait for pigs to fly, and for me to live to 300 years old.  Since this happened back in 2005-2006, I am sure a prosecution is going to happen any day now.

This entry goes into Financial Ground Zero series.  This event is small potatoes and irrelevant.  What isn't irrelevant is lack of law enforcement (corruption) which will ultimately take down the US dollar if the law continues to be ignored.  If this isn't a clear cut case of Moral Hazard is waaaay past a theory and fact, i don't know what it will take to prove that lack of prosecutions directly influences risk takers to cross the line to take on more risk.

Northern Dynasty falls apart - NAK

Northern Dynasty had a great run in Feb 2011, reaching a high of 21.
It has had a steady decline since then, but the stock character changed starting early March.
The stock flatlined in March and April, and resumed a decline in May.
Yesterday it completely fell apart, due to EPA announcement of possible damage to worlds largest Salmon fishery, closing at 2.55.

The stock may bounce a little, but I can't see any substantial recovery (above 6 bucks) until this matter is resolved.  And worst case, could go to zero if fined heavy enough.

I posted on NAK before, last I could find mention is April 2011, as part of basket of miner stocks.

My last overall post on stocks was negative, and has been since September 2011.  Granted the market didn't comply and moved up further, but I remain cautious.

Canary in Coal Mine - Japan

I have posted before that when Japan's economy becomes unmanageable, it will be the canary in the coal mine for the USA.   Sure Greece, Ireland, Spain, Portugal, Iceland, and others can be viewed as warnings.  But most of those countries have centuries of history of periodic economic resets.  Japan however is a different story, it is regarded as a conservative society and as the picture of stability.

So if Japan goes south, America better hear that message.

Yesterday Japan's Sovereign debt was downgraded

Fitch Ratings cut Japan's long-term foreign currency rating by two levels from AA to A plus, the fifth highest investment grade. It cut the more important local currency rating by one notch from AA minus to A plus. Both were given a negative outlook. - Reuters

Japan faces what most western countries face and China faces, a demographic nightmare.  See my post "Demographics is driver for economic growth", where I have a couple of odd suggestions on solutions.

There is a strong possibility the deal with China made in 2011 to buy US bonds directly was partially done to prolong America's ability to avoid a bond run.  However, I also believe that corruption never wins, and will delay the eventual same result.

Interesting times.

USA Circumvents Bond Markets for China

It is very evident by the actions by the US government since 2008 that preserving capitalism is not at the priority list.

International accounting standards were changed in 2009, as it remains today, with mark to fantasy accounting.

The Federal Reserve bank outwardly admits manipulation of capital markets to achieve it's goals.

It is now discovered that since June 2011 China has been given ability to circumvent open trading of US bonds and allowed a "direct bid" with the US for bonds.

This is new, and I am unsure if bad, but my gut says bad.  Why? Anytime there is large transactions without transparency it leads to corruption.   A liquid bond market where all US bonds are traded openly is less prone to manipulation.

All of this has become necessary as the system is no longer regarded as a system of respect, but of changing process to serve not the people, but the minority self interests.  In effect, the system is breaking.  Another hint of corruption is we find out about this in May 2012, and not June 2011.  Wonder why it wasn't proudly announced coupled with a transparent published trading record........

I am adding this to my series "Financial Ground Zero" of events that will lead up to the final event with US Financial and Currency system.

Decent Entry for Miners

Its no secret the market has taken a beating, and resource stocks have been brutalized.

Some like Gary are calling for a near term bottom in gold miners.  For me the jury is out.
There are many factors at play, and one of them is the Fed's reaction to the deflationary collapse that is gaining steam.

Assuming the Fed announces a new Quantitative easing "rebranded" announcement, gold may be poised for a nice leg up, along with it the Gold Miners.

If you haven't already, consider adding - yet again just a little - GDX at 41.50 range, and GDXJ at 18.50 range right now.  Put some stink bids in at 39 & 17, and see if we get a down-up day for a good price.

Make sure you have margin left over, for this rabbit hole could go much deeper.
I wouldn't buy anything else right here and now.  We could have a nice 2008 deflationary collapse again.
China's real estate is cracking so is Australia.
In a deflationary collapse gold miners and gold could repeat 2008.
Isn't this fun?   The bets are not on business cycle, but on what is the reaction of world banks.

I am selling some of the inverse funds, DXD and VIXY right here, and putting stops in.  Too much down too quick for not to take it off the table.

Good luck.

Deck

Those who follow me for a while will remember I shorted Deck a few times, well the stock finally deflated form high of 120 six months ago to down to 55.

Its all in the timing.

Time to buy GDX?

Click here to look at current chart of GDX.

GDX has been trading in a range for a few weeks, I suspect it is consolidation.
Right now GDX is about 46, and GDXJ at 22.
I like buying a little more between 46-45 and GDXJ at 22-21.

For greater analysis than just a chart, check out Gary of Smart Money tracker.

The only question is can miners buck the trend if the stock leaders burst.

Government Numbers are a farce...says TrimTabs

Good watch, although I could lose the sarcasm.

Time to buy more metal miners?

If you look at the chart below, buying GDX or GDXJ right now is like trying to catch a falling knife.  And if you look back at my blog, when I try to catch falling knives, I don't have a great track record.

But here I am again, trying to catch falling knives.  GDX and GDXJ, among other resources have taken a beating in the last 6 months or so.  And in the last run up of the market, precious metal miners did not fare well at all.

There are plenty of reasons to NOT buy metal miners right now.  There are economic issues in Europe and China, as well as lower issues in the USA.   Outlook looks dicey at best, with many economic indicators swooning.  In a down market, everything takes a hit, it is almost unheard of for one sector to boom while all others bust.
Oil prices are staying stubbornly high, and I can't see them taking a huge hit.  Energy supplies are tight, and USA consumption of gas is at a 5+ year low.  The world needs more cheap energy, it isn't the USA's market anymore.

All of above really makes it hard to say buy miners.   So I don't advocate any major purchases, just  tiny amount, a buy over time to average costs.  Right here and now looks like a decent spot.

Gary of the Smart money tracker is much more nimble, he is in and out at first sign of trouble.  If you want to be nimble, please read his advice.

I am trying to look for buying opportunities for metals and energy over time.  Miners have taken a beating, maybe much more of a beating ahead.  But eventually, the global political pressures and eventually the next economic upswing, both will apply pressure to resources and bring these sectors back with a vengeance.

To me its a guarantee that resources will be up in 2+ years, in a big way. The only question is, how long to sit and wait to get better pricing for the ride ahead.  Is now the time? If you can tell when the right time to catch falling knives, put a comment below.  For me, buy low, sell high, and there is no dispute, prices are on the lower side historically for these ETFs.

George Carlin Pretty Much Sums it Up

The one aspect that is completely missed, is internet and social networking will  bring power back to the people.   As I posted here and here.  Otherwise, George Carlin video pretty much sums it up.....if you are looking for a scapegoat.
I  think George is flat wrong, there is no grand conspiracy.  People of every area of society get away with as much as they can.  It is up to the other members of society to push back appropriately and hold the line, to defend their interests.  Those who don't, allow the other areas to over-extend their influence.

So while the video below is a entertaining watch, it is a twist of reality.  The reason why the system is allowed to be perverted, is right in the mirror.  But it is easier to play the victim card than to do something about it.

For more about current corruption, watch this video series.

Market Breakdown Near?

Everything I read states market breakdown maybe around the corner, or at very least slow bleed in the months to come.  Either way, fixed income is the only place to be, as all assets may decline.

The wild card of course is the world's hero, Ben Bernanke, he can give the market another pop, but each time the half-life of the effect hits.  So even if he does, it just kicks the can for months, not years at this point.

On target for 2012 to be a down year, after a really strong start.
Good luck

Bernanke says stemming bank runs may be difficult, does anyone care?

When I read Ben Bernanke statement today, I was floored by this statement:

He reiterated a worry that he and other top policymakers have expressed about the continued vulnerability of money market funds.
"The risk of runs ... remains a concern, particularly since some of the tools that policymakers employed to stem the runs during the crisis are no longer available," he said.


Wow, did I just hear a nuclear bomb go off?   Risk of bank runs is still a concern?   But Ben Bernanke is the worlds hero, he saved the world from financial Armageddon.
A hero is someone who changes the world for the better, doesn't do delay tactics and the world still faces the same issues 4 years later!
But the world yawns, and all is good.   What I am unsure of is what does this signal from Bernanke?  Does this mean in the next financial market downturn, his hands are tied?

The argument among bloggers is about The fed's loose monetary policy, can it be kept up forever without consequence?   The thought is the rise of natural resource prices are to blame for loose money games.  And that Ben cannot keep up the same level of monetary loose policies for fear of sparking more civil unrest.

We are seeing in Europe pressure of a classic Deflationary collapse, and in America and China, inflationary forces at work.  The cause is debatable.

What is reality is immaterial.  What matters is what the Federal Reserve believes is reality, and how the behavior may change in the year to come.  If Ben believes that his monetary policies cannot be pursued to the same extent as in 2008, then we will have a change in financial markets, its only a matter of time.

New Civic Activism

Next time someone says the government is broken, or politicians don't do the right thing, agree with them!

Then ask, how are they trying to improve it? And voting does not count.

GREAT video about the re-invention of civic activism.  Bringing what the WW 2 vets did into the new century.
Time to roll up sleeves and get active.

Future of Society

I truly believe 100 years from now, government will be an open frame work akin to wikipedia.  It will unite humanity like old governments could not.
Between now and then I do fear much turmoil, as change is never easy.

Good video on open government.  The internet revolution doesn't end with Music, Videos, publishing, games, finance, education, etc.  It is a transformation of society.

Corruption will be marginalized in the open society, and the average citizen rewarded vs those holding position.

A journalist FINALLY gets tough

There are so few examples of journalists being tenacious with politicians and other people in positions to ask the tough questions to protect the interest of it's citizens.

The  Irish journalist Vincent Browne is tenacious and shrewd.  He  was able to avoid the tactic of microphone change once his question was asked.  The problem is there should be an army of journalists asking tough questions.  But of course, I see so rare an occasion of tough journalism, that over the years I have only a handful of examples.

Vincent Browne has a hard hitting show on TV3, well worth a watch.

I have posted how the Irish government sold it's citizens into decades of debt slaves, when smarter countries, like Iceland avoided that fate.

A great video to watch, how the law is continually perverted by governments extending payments to un-guaranteed gambling (investing?) debts at the cost of the citizens.

Vincent Browne, thank you for doing your job.

Bernanke Villain or Hero

I read a blog post or two, and saw picture of Ben Bernanke pictured as Hero.  Article goes on to say how there is much debate about Bernanke's actions, and what this will lead to.

For those not following Ben Bernanke, he is the chairman of the most powerful banking institution of the world, the private bank named Federal Reserve Bank.  This bank is not part of the US government, but does act in concert with US government co-operation.

Mr. Bernanke took extraordinary measures to prevent an all out deflationary collapse back in 2008.  Since 2009, normal accounting measures Mark to Market have been suspended as they are to this day.  Under the new order of super low fixed interest rates, corporate accounting changed to mark to fantasy valuations, the corporate earnings have never been better.

I actually don't have a problem with the dramatic steps taken in the time of pressure.  Some decisions may have been not the best, but overall at the time, the net result cannot be disputed by anyone.  The collapse feared did not materialize.

What I have a problem with is there is zero plan to return to normal accounting measured in place since the Great Depression.  Further, I have an issue with lack of any prosecutions at all for the trillions in fraudulent mortgage operations that have been clearly documented publicly.   Also I have issue that the US government has not had a budget since George W Bush and spends money as it sees fit, without any constraint.

These acts are a perversion that will lead to consequences.  Lets not forget WHY 2008 imploded.  Basically the Federal Reserve Bank allowed fraudulent asset bubbles to occur.  Ben Bernanke himself testified numerous times that the economy was rock solid.  He was either ignorant or lying.  And now he takes the credit for being right after all the drastic measures taken and saving the world?  The entire 2008 problem was partly to blame on him and his predecessor.

But I digress.  What I realized is I actually DON'T have a problem with Quantitative easing per say.   That is the Federal Reserve Bank purchasing long term US debt (30 year bonds) in the billions to artificially lower interest rates.   I used to until today.  Why the change of heart?

I realized, that my argument in the past of "what is money" and "gold is not money" align with what Bernanke is doing.  In effect, if 30 year bond rates go to zero interest rates, he is creating the scenario that cash can be printed with no interest attached.  This is in line with my thoughts of what currency should be.  Money should be created without a "bank tax".  Each US dollar you have in your hand, or in a bank, has a tiny amount of interest that is going to someone, somewhere.  Granted, with fractional reserve lending, the rate is net lower for each dollar created, but its there.

What will make this all fall apart isn't QE.  Its enforcing law, and treating currency (QE or not) with respect. Currency can't be created with zero limitations into thin air.  Money must be created with true value of work behind it.    For example, if you photo-copy money and spend it, the fraud is you did not contribute to society to EARN the cash.  In effect, your "promise note of work" is fraudulent.

If currency is printed and doled out without work behind it, the new dollars are in fact fraudulent, and will devalue faith in the USD over time.

In closing, the consequences of actions taken by Bernanke and others will unfortunately lead to hardships for all of us, as there is nothing for free in life.  The fraud running rampant will cause an effect.   Bernanke needs to take not just the good, but the bad that he encourages through the Fed.   And in 2013, when I think things will start to get hairy, I don't think you will be seeing Hero magazines of Ben.

My friend John says, when the market hits a top or bottom, no bell rings.  Today Bernanke is claimed to be  a hero while at the same time, market volatility index the "VIX" is at a 4+ year low, with stocks at a 4-year high (SPX 1400).   VIXY may be a buy here at $39.48.  That is as close as a bell as I can hear.