Baltic Dry Index. 1334 -10
LIR Gold Target by 2019: $30,000. Revised due to QE.
A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected. If he is lucky enough to begin at a time of expansion in trade, he is nearly sure not to be found out till the time of contraction has arrived, and then very large figures will be required to reckon the evil he has done.
Walter Bagehot. Lombard Street. 1873.
For more on “Squids in Heaven”, scroll down to Crooks and Scoundrels Corner, where Rolling Stone’s ever colourful, entertaining, and all too accurate ace reporter takes on the House of Ebenezer Squid. It was just like taking candy off babies, if babies will forgive the comparison to Europe and Australia’s brain dead banksters and hedge fund managers. Not for Goldie, a 150 years sharing anecdotes with Wall Street’s poster child Bernie Madoff.
In commodities, we seem to have returned to the great bull markets of the 1970s. Great bull markets start of relatively slowly but then get manic, as great cross currents of money collide against news, margin hikes, and most of all over-leverage. In the 70s, under somewhat different rules, it wasn’t unusual to have several days of limit up markets, only for trading to suddenly resume to be followed by a few days of limit down moves. Fortunes were made and destroyed in a matter of days. Some of the moves were the result of shortages of the underlying commodity relative to increasing demand. Much of it, thought, was just sheer speculation, as an out of his depth US President coincided with the great wave of fiat money speculation, following the Great Nixonian Error of abandoning the dollar gold link, rather than a devaluation against gold. The first wave of fiat currency flight was underway. Inflation took off, largely the result of the first of the 1970s oil shocks. Under the fiat currency regime, inflation has never ever really been contained since.
Below, yesterday’s fun and games in oil and gasoline trading.
May 11, 2011, 3:46 p.m. EDT
Gasoline, oil trading halted
Trading resumes after Nymex sets new loss limits
SAN FRANCISCO (MarketWatch) — Gasoline futures hit the New York Mercantile Exchange’s floor on price drops Wednesday, triggering a brief but unusual halt in oil and gasoline futures trading, and prompting the exchange to allow for even deeper losses.
The June gasoline contract fell 25 cents to $3.1297 a gallon, prompting CME Group to halt trading in crude oil, heating-oil and gasoline for five minutes.
They reopened shortly after noon Eastern, with expanded limits of $20 for crude-oil futures and 50 cents for heating-oil futures and gasoline futures, the CME said in an emailed statement.
Energy futures, already falling, added to losses after the exchange’s moves. CME Group operates the New York Mercantile Exchange and electronic trading platform CME Globex.
Gasoline settled down 26 cents, or 7.6%, at $3.123 a gallon. West Texas Intermediate crude oil for June delivery lost $5.67, or 5.5%, to $98.21 a barrel. Heating oil for June delivery lost 10 cents, or 3.4%, to $2.898 a gallon.
Under the exchange’s rules, daily price-move limits can be expanded in any of the three major petroleum products after one hits a floor or ceiling.
The moves made for another day of upheaval in commodities markets, following several sessions of sharp drops and then nearly as sudden rebounds. Efforts by the main U.S. metals exchange to quell volatility and potential risk in silver futures by multiple margin hikes, following a surge in prices to 31-year highs, have made for an added element of uncertainty to commodities trading. The CME raised margin requirements for oil on Tuesday.
Analysts said exchange halts in energy products were relatively rare.
The exchange’s move followed a sell-off in oil and gasoline futures Wednesday, set in motion by a range of macroeconomic and local issues — from Chinese inflation data, which bolstered expectations that policymakers in China would further hike rakes, to a jump in the dollar against the euro on worries about a Greek default, to reduced concerns about the impact of Mississippi River flooding on U.S oil refiners.
Gasoline futures had added 9% by the close of Tuesday’s regular session, from Friday, on speculation the rising river could flood refiners. Some of that speculation decreased Wednesday.
http://www.marketwatch.com/story/gasoline-oil-trading-halted-2011-05-11
Once again great fortunes are being made and lost, though for now we just don’t know where. Unlike the 1970s, this great commodity bull market is more soundly based. One third of the world’s population is still coming out from the self exclusion imposed by murderous communism. Their catching up to first world standars still has some ways to go. This time round, we have entered the end phase of the dollar reserve standard. The American casino essentially went bust back in 2008, and the economy is now underpinned by quantitative easing. That set off a great stock market rally which spilled over into commodities. Currently, we are in a volatile pause phase, probably related to the end of the Fed’s QE2 program, and noise from the Fed that there won’t be a QE3. I think there will be. Once on QE programs it’s impossible to stop without triggering the depression they were started to avoid. None of the central banks dare allow that to happen. After a late spring early summer shakeout, we are likely to see the Fed back in with QE3. Since QE programs destroy the purchasing power of the fiat currency, the bull market will resume again, in anticipation for a great inflation to come, even as the real economy stagnates, and the fiat currency starts to become too hot to handle losing its store of value quality. Stay long physical precious metals. This decade will resemble the 1970s but on steroids.
In the oil market though, Saudi Arabia has been saying for some time that price run up wasn’t based on any real world supply and demand. There was plenty of crude around to meet current global demand. If the Saudis are right, and they probably are, crude oil and the derivatives, probably still have further to correct. What else could possibly go wrong? Anyone heard from Greece this morning? Will a double earthquake do in Spain? Where next on the European-African plate fault?
The whole history of civilization is strewn with creeds and institutions which were invaluable at first, and deadly afterwards.
Walter Bagehot.
At the Comex silver depositories Wednesday, final figures were: Registered 32.75 Moz, Eligible 68.31 Moz, Total 101.06 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today, more on the unintended consequences of fiat money, more on “God’s work” at the house of Ebenezer Squid. Wall Street 21st century style, under the bubble maniacs of the Fed, lead by fallen guru Greenspan, aided and abetted by the dollar suicidal “Helicopter” Ben. Incredibly 3 and a bit years after the insolvency of the G-7 system, and the forced taxpayer bailout of Great Vampire Squids all around the planet, no one other than the great Ponzi fraud Madoff has gone to jail. In America, home of the great fraud peddled all around the globe, the Squids are simply too powerful and have the goods on US politicians and regulators.
"God, no, we don't club baby seals. We club babies."
Goldmanite, quoted in The Times of London. November 8 2009
The People vs. Goldman Sachs
A Senate committee has laid out the evidence. Now the Justice Department should bring criminal charges
By Matt Taibbi May 11, 2011 9:30 AM ET
----In the marketing materials for the Hudson deal, Goldman claimed that its interests were "aligned" with its clients because it bought a tiny, $6 million slice of the riskiest portion of the offering. But what it left out is that it had shorted the entire deal, to the tune of a $2 billion bet against its own clients. The bank, in fact, had specifically designed Hudson to reduce its exposure to the very types of mortgages it was selling — one of its creators, trading chief Michael Swenson, later bragged about the "extraordinary profits" he made shorting the housing market. All told, Goldman dumped $1.2 billion of its own crappy "cats and dogs" into the deal — and then told clients that the assets in Hudson had come not from its own inventory, but had been "sourced from the Street."
Hilariously, when Senate investigators asked Goldman to explain how it could claim it had bought the Hudson assets from "the Street" when in fact it had taken them from its own inventory, the bank's head of CDO trading, David Lehman, claimed it was accurate to say the assets came from "the Street" because Goldman was part of the Street. "They were like, 'We are the Street,'" laughs one investigator.
Hudson lost massive amounts of money almost immediately after the sale was completed. Goldman's biggest client, Morgan Stanley, begged it to liquidate the investment and get out while they could still salvage some value. But Goldman refused, stalling for months as its clients roasted to death in a raging conflagration of losses.
----To recap: Goldman, to get $1.2 billion in crap off its books, dumps a huge lot of deadly mortgages on its clients, lies about where that crap came from and claims it believes in the product even as it's betting $2 billion against it. When its victims try to run out of the burning house, Goldman stands in the doorway, blasts them all with gasoline before they can escape, and then has the balls to send a bill overcharging its victims for the pleasure of getting fried.
----Timberwolf, the most notorious of Goldman's scams, was another car whose engine exploded right out of the lot. As with Hudson, Goldman clients who bought into the deal had no idea they were being sold the "cats and dogs" that the bank was desperately trying to get off its books. An Australian hedge fund called Basis Capital sank $100 million into the deal on June 18th, 2007, and almost immediately found itself in a full-blown death spiral. "We bought it, and Goldman made their first margin call 16 days later," says Eric Lewis, a lawyer for Basis, explaining how Goldman suddenly required his client to put up cash to cover expected losses.
----In many ways, Timberwolf was a perfect symbol of the insane faith-based mathematics and blackly corrupt marketing that defined the mortgage bubble. The deal was built on a satanic derivative structure called the CDO-squared.
----A CDO, to begin with, is already a highly dubious tool for magically converting risky subprime mortgages into AAA investments. A CDO-squared doubles down on that lunacy, taking the waste products of the original process and converting them into AAA investments. This is kind of like taking all the kids who were picked last to play volleyball in every gym class of every public school in the state, throwing them in a new gym, and pretending that the first 10 kids picked are varsity-level players. Then you take all the unpicked kids left over from that process, throw them in a gym with similar kids from all 50 states, and call the first 10 kids picked All-Americans.
Those "All-Americans" were the assets in the Timberwolf deal.
---- Goldman knew the deal sucked long before it dinged the Aussies in Basis Capital for $100 million. In February 2007, Goldman mortgage chief Daniel Sparks and senior executive Thomas Montag exchanged e-mails about the risk of holding all the crap in the Timberwolf deal.
MONTAG: "CDO-squared — how big and how dangerous?"
SPARKS: "Roughly $2 billion, and they are the deals to worry about."
Goldman executives were so "worried" about holding this stuff, in fact, that they quickly sent directives to all of their salespeople, offering "ginormous" credits to anyone who could manage to find a dupe to take the Timberwolf All-Americans off their hands. On Wall Street, directives issued from above are called "axes," and Goldman's upper management spent a great deal of the spring of 2007 "axing" Timberwolf. In a crucial conference call on May 20th that included Viniar, Sparks oversaw a PowerPoint presentation spelling out, in writing, that Goldman's mortgage desk was "most concerned" about Timberwolf and another CDO-squared deal. In a later e-mail, he offered an even more dire assessment of such deals: "There is real market-meltdown potential."
On May 22nd, two days after the conference call, Goldman sales rep George Maltezos urged the Australians at Basis to hurry up and buy what the bank knew was a deadly investment, suggesting that the "return on invested capital for Basis is over 60 percent." Maltezos was so stoked when he first identified the Aussies as a target in the scam that he subject-lined his e-mail "Utopia."
"I think," Maltezos wrote, "I found white elephant, flying pig and unicorn all at once."
More.
http://www.rollingstone.com/politics/news/the-people-vs-goldman-sachs-20110511?page=4
"If the financial system goes down, our business is going down and, trust me, yours and everyone else's is going down, too."
Lloyd Blankfein. CEO Goldman Sachs. November 8, 2009
The monthly Coppock Indicators finished April:
DJIA: +182 Up. NASDAQ: +236 Up. SP500: +185 Up.
The Dow and SP 500 and NASDAQ have all reversed from down to up. The Fed’s rigging of the indicators seems to have worked. Note: like all indicators, they were devised for normal markets not markets where the central bank is flooding the economy with new cash. In current conditions where risk is suspended by too big to fail, I doubt any indicators are showing more that where the Fed’s new cash is flowing in our world of casino capitalism.
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