The Sickening Abuse Of Power At The Heart of Wall Street:

Written by Simon Johnson
April 24, 2010 at 3:02 pm

http://baselinescenario.com/2010/04/24/the-sickening-abuse-of-power-at-the-heart-of-wall-street/

Here’s where we stand with regard to democratic discourse on the future our financial system: leading bankers will not come out to debate the issues in the open (despite being approached by reputable intermediaries after our polite challenge was issued) – sending instead their “astro turf” proxies to spread KGB-type disinformation.

Even Larry Summers, who has shifted publicly onto the side the angels (surprising and rather late, but welcome anyway), cannot – for whatever reason – bring himself to recognize the dangers inherent in our unstable and too-big-to-manage banks. Or perhaps he is just generating excuses that will justify not bringing the Brown-Kaufman amendment to the floor of Senate?

So let’s take it up a notch.

I strongly recommend that the responsible congressional committees request and require all assistant secretaries at the US Treasury (and other relevant political appointees over whom they have jurisdiction) to appear before them early next week.

The question will be simple: Please share your calendar of meetings this weekend, and provide us with a complete accounting of people with whom you met and conversed formally and informally.

The finance ministers and central bank governors of the world are in Washington this weekend for the spring meetings of the International Monetary Fund. As is usual, the world’s megabanks are also in town in force, organizing big meetings and small dinners.

Through these meetings dutifully troop US treasury officials, providing in-depth and off-the-record briefings to investors.

Banks such as JP Morgan Chase and the other top tier financial players thus peddle influence, leverage their access, and generally show off. They accumulate information from a host of official contacts and discern which way policymakers – their “good friends” – are leaning.

And what is the megabank whisper mill working on? Ignore the “economic research” papers these banks put out; that is pure pantomime for clients-to-be-duped-later. I’m talking about what they are telling the market – communicated in specific, personal conversations this weekend.

They are telling people that, based on their inside knowledge, Greece and potentially other eurozone countries will default on their debt. Perhaps they are telling the truth and perhaps they are lying. Most likely they are – as always – talking their book.

But the question is not the substance of their whisper campaign this weekend, it is the flow of information. Have they received material non-public information from US government officials? Show me the calendar of the top 10 treasury people involved, and then we can talk about whom to summon from the private sector to testify – under oath – about what they were told or not told.

There is no question that the megabanks derive great power and enormous profit from their web of official contacts. We should reflect carefully on whether such private flows of information between governments and “too big to fail” banks are entirely suitable in today’s unstable financial world.

Large global banks make money, in part, through nontransparent manipulation of information – this is the heart of the SEC charges against Goldman Sachs. But the problem is much broader: the Wall Street-Washington corridor is alive and well on its way to another crisis that will empower, enrich, and embolden insiders (public and private) while impoverishing the rest of us.

The big players on Wall Street are powerful like never before – and they use this power to press for information and favors from sympathetic (or scared) government officials. The big banks also appear hell-bent on abusing that power. One consequence will be further destabilizing global financial markets – watch carefully what happens to Greece, Portugal, Ireland, and Spain at the beginning of next week.

It is time for Congress to step in with a full investigation of the exact flow of information and advice between our major megabanks and key treasury officials. Start by asking tough questions about exactly who exchanged what kind of specific, material, market-moving information with whom this weekend in Washington.

More News Relating To Goldman Sachs:

Here are a number of articles related to the SEC fraud charges against Goldman Sachs:

Goldman Loses German Bank's Business—Are Bonds Next?

http://www.cnbc.com/id/36694793

Along with SEC, other investigators and suits may target Goldman Sachs:

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/21/AR2010042105394.html

AIG Considering Potential Claims Against Goldman Sachs:

http://online.wsj.com/article/SB10001424052748704671904575195010771947900.html?mod=WSJ_hpp_MIDDLETopStories

Meet The New Goldman Derivatives Business:

http://www.marketwatch.com/story/meet-the-new-goldman-derivatives-business-2010-04-22

Michael Lewis: Must Read Today by Karl Denninger:

http://market-ticker.org/archives/2230-Michael-Lewis-Must-Read-Today.html

Goldman Suit Exposes Big Banks to Firestorm:

http://news.goldseek.com/RickAckerman/1271829600.php

By: Rick Ackerman
Wednesday, April 21, 2010

Now we learn that the SEC split 3-2 over whether to go after Goldman Sachs in court. Supposedly, the regulatory agency prefers unanimous votes when bringing enforcement actions against the firms it regulates. Why the exception this time? The Wall Street Journal made it sound like it was simply partisan politics that carried the day – i.e., the SEC’s two Republicans voted against suing Goldman for civil fraud, but the three Democrats prevailed. That is superficially what happened, and it is as much of the story as the SEC is willing to divulge right now. But it’s bound to leave many observers, particularly Obama-ites in Congress who are out to pillory the bankers, with the impression that the two Republicans were merely looking out for their fat-cat buddies on Wall Street. This thought occurred to us as well, so we’d have to concede it is at least possible.

But might there have been another reason why the Republicans backed away from bringing formal charges against Goldman? We think there is and that it goes to the heart of the corruption in which the world’s largest banks have inextricably trapped themselves. For if you assert in a of court law that Goldman defrauded its customers, you have implicated every bank in the big leagues. Enabled by their respective central banks, they all – even the ones run by otherwise spotless Swiss Burghers -- play the same Ponzi game. Moreover, regardless of whether the charges brought against Goldman are civil or criminal, they will open the door to an endless flood of litigation with the potential to bring down the entire banking system. From this point forward, Goldman will be fair game for every aggrieved city, county, state, sovereign fund and class of investor they have done business with for the last decade. The same goes for Bank of America, J.P. Morgan, Morgan Stanley, Deutsche Bank et al.

Lynch Mob:

So it’s just possible the Republicans put politics aside when they voted, in effect, to quietly sanction Goldman behind the scenes. It must also have occurred to them that it would ultimately be impossible to mask the overwhelming stench of Goldman’s actions. The firm, after all, did sell an investment to the public that had secretly been created by someone betting on the portfolio to fail. There is no way Goldman can talk its way out of this, although that hasn’t stopped CEO Lloyd Blankfein from trying. With Goldman reporting a spectacular $3.4 billion quarter yesterday, he might as well be trying to explain to a lynch mob that he has never, ever kicked his cat and that he always helps little old ladies cross the street.

Some see the charge of civil, as opposed to criminal, fraud as reflecting a compromise engineered by Mr. Obama to help expedite his takeover of the financial sector. “He stirs up the masses with yet another example of Wall Street greed and fraud,” wrote one contributor to the Rick’s Picks forum, “but offers nothing more than what amounts to a fine to his friends at Goldman. We all know how deep their pockets are. They are quietly happy that this is the extent of the fallout.” While this seems plausible, it doesn’t reckon with the fact that just one civil suit could conceivably put the world’s largest banks in mortal jeopardy for years to come. Indeed, if they should somehow dodge the bullet, it would be evidence that the corruption that permeates the banking system has engulfed our judicial and political systems as well.

VIDEO - Fundamental & Technical Analysis of the S&P 500's Daily & Weekly Charts:

Here is the end of the week analysis of the S&P 500's daily and weekly charts, with comments on important reports due out next week.

Happy Trading this week,
zigzagman

US Bank Accounting 'Masks True Debt Levels’:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7572887/US-bank-accounting-masks-true-debt-levels.html

US bank accounting 'masks true debt levels’

By James Quinn, US Business Editor
Published: 6:00AM BST 10 Apr 2010

Major Wall Street banks are using accounting techniques similar to those utilised by Lehman Brothers in its final days to mask the size of their balance sheets at the end of reporting periods.

The banks – which include Goldman Sachs – use complex but perfectly legitimate transactions in order to present investors and the wider market with a brighter assessment of their financial health.

Data analysed by the Wall Street Journal found that 18 major banks were, on average, able to reduce debt levels used to fund securities tradesby 42pc over the last five quarters using repurchase agreements, also known as “repo” trades. Under certain circumstances, some repurchase trades can be booked as “sales” and used to reduce debt.

The assessment, based on data from the Federal Reserve Bank of New York, highlights the extent to which advanced accounting is still in use, even in the wake of the crippling financial crisis.

In Lehman’s case, the court-appointed investigator’s report into the bank’s September 2008 downfall found that the bank had used “Repo 105” – the name given to the technique within the bank – to significantly mask its borrowing, so decreasing its apparent risk profile.

According to the report, the ruse allowed Lehman to claim its liabilities were $50bn (£33bn) lower than they actually were by May 2008, just months before the bank collapsed.

The US Securities and Exchange Commission (SEC) is now looking into how widespread the use of such techniques actually is.

At the end of March, the US financial regulator dispatched letters giving America’s24 largest banking and insurance firms two weeks to hand over detailed information on how the repurchase agreements are used, as well as how such agreements are accounted for and disclosed to investors.

It is not known what the SEC intends to do with the data once it has received it, or indeed whether it will ever be made public.

Whatever the outcome, the latest revelations about the extent of the use of repo-financing should worry investors in the financial sector, as it suggests that banks are continuing to take pre-crisis level risks in spite of the events of the last two years.

A Goldman Sachs spokesman said: “Normal fluctuations in the size of our balance sheet… as well as fluctuations in specific line items, are fully disclosed in our quarterly and annual SEC filings.”

"Employment Will Come Back In America, It's Just Pay That Won't"

http://www.businessinsider.com/robert-reich-the-future-of-american-jobs-2010-4

Robert Reich | Apr. 12, 2010, 11:18 AM

Many of my students at Berkeley who will be graduating in June are worried about the job market. I understand their worries. But they and other new college grads have less cause for concern than most American workers. Let me explain.

Since the start of the Great Recession in December 2007, the U.S. economy has shed 8.4 million jobs and failed to create another 2.7 million required by an ever-larger pool of potential workers. That leaves us more than 11 million jobs behind. (The number is worse if you include everyone working part-time who’d rather it be full-time, those working full-time at fewer hours, and people who are overqualified for the jobs they’re in.)

This means even if we enjoy a vigorous recovery that produces, say, 300,000 net new jobs a month, we could be looking at five to eight years before catching up to where we were before the recession began.

Given how many Americans are unemployed or underemployed, it’s hard to see where we get sufficient demand to support a vigorous recovery. Outlays from the federal stimulus have already passed their peak, and the Federal Reserve won’t keep interest rates near zero for very long. Although consumers are beginning to come out of their holes, it will be many years before they can return to their pre-recession levels of spending. Most households rely on two wage earners, of whom at least one is now likely to be unemployed, underemployed or in danger of losing a job. And even households whose incomes have returned are likely to be residing in houses whose values haven’t—which means they can’t turn their homes into cash machines as they did before the recession.

While consumers have been shedding their debts like mad—often simply by defaulting on loans—their remaining burdens are still heavy. At the end of last year, debt averaged $43,874 per American, or about 122% of annual disposable income. Most analysts believe a sustainable debt load is around 100% of disposable income, assuming a normal level of employment and normal access to credit—neither of which we are likely to have for some time.

Some economic cheerleaders say rising stock prices are making consumers feel wealthier and therefore readier to spend. But most Americans’ biggest asset is their homes. The “wealth effect” is felt mainly by the richest 10%, whose net worth is largely stocks and bonds. The top 10% accounted for about half of total national income in 2007. But they were only about 40% of total spending. A vigorous jobs recovery can’t be based on 40% of what was spent before the economy collapsed.

What’s likely to slow the jobs recovery most, however, is the indubitable reality that many of the jobs that have been lost will never return.

The Great Recession has accelerated a structural shift in the economy that had been slowly building for years. Companies have used the downturn to aggressively trim payrolls, making cuts they’ve been reluctant to make before. Outsourcing abroad has increased dramatically. Companies have discovered that new software and computer technologies have made many workers in Asia and Latin America almost as productive as Americans, and that the Internet allows far more work to be efficiently moved to another country without loss of control.

Companies have also cut costs by substituting more computerized equipment for labor. They’ve made greater use of numerically controlled machine tools, robotics and a wide range of office software.

These cost-cutting moves have allowed many companies to show profits notwithstanding relatively poor sales. Alcoa, for example, had $1.5 billion in cash at the end of last year, double what it had on hand at the end of 2008. It managed this largely by cutting 28,000 jobs, 32% of its work force. But for workers, there’s no return. Those who have lost their jobs to foreign outsourcing or labor-replacing technologies are unlikely ever to get them back. And they have little hope of finding new jobs that pay as well. More than 40% of today’s unemployed have been without work for over six months, a higher proportion than at any time in 60 years.

The only way many of today’s jobless are likely to retain their jobs or get new ones is by settling for much lower wages and benefits. The official unemployment numbers hide the extent to which American workers are already on this downward path. But if you look at income data you’ll see the drop.

Among those with jobs, more and more have accepted lower pay and benefits as a condition for keeping them. Or they have lost higher-paying jobs and are now in new ones that pay less. Or new hires are paid far lower wages than the old. (In January, Ford Motor Co. announced that it would add 1,200 jobs at its Chicago assembly plant but didn’t trumpet that the new workers will be paid half of what current workers were paid when they began.) Or they have become consultants or temporary workers whose pay is unsteady and benefits nonexistent.

This shift also helps explain why the unemployment rate for Americans with college degrees is now only 5%, while it is 10.5% for those with only a high-school degree, and 15.6% for Americans with less than a high-school diploma. The jobs of well-educated Americans, although hardly immune to foreign outsourcing and technological displacement, have been less vulnerable to these trends than the jobs of Americans with fewer years of education.

The likelihood, therefore, is that as the economy struggles to recover and today’s jobless begin to find work, the median wage will continue to fall—as it did between 2001 and 2007, during the last so-called recovery.

More Americans will be working, but for pay they consider inadequate. The approaching recovery will be tepid because so many people will lack the money needed to buy all the goods and services the economy can produce.

Americans will once again be employed, but they will also be back on the downward escalator of declining pay they rode before the Great Recession.

VLNC - Valence Technology Brings Intelligent Batteries to "Smart Grid Community of the Future":

http://finance.yahoo.com/news/Valence-Technology-Brings-bw-2494091485.html?x=0&.v=1

$13.5 Million DOE Grant to Help Fund a $27.4 Million Regional Demonstration Project: “Technology Solutions for Wind Integration in the Electric Reliability Council of Texas”

Press Release Source: Valence Technology, Inc.
Thursday April 8, 2010, 9:03 am EDT

AUSTIN, Texas--(BUSINESS WIRE)--Valence Technology (NASDAQ: VLNC) today announced it has been selected as the preferred residential/community battery technology provider for the “Smart Grid Community of the Future,” the first smart grid solar powered residential development in Texas, the Houston-area master planned community of Discovery at Spring Trails. Utilizing its lithium phosphate battery design, including intelligent Command & Control logic, Valence Technology will supply dynamic energy systems for the individual smart grid residences containing electric vehicle charging stations and smart appliances. Valence Technology’s energy solutions will be used to support a smart-energy practice known as “peak shaving,” whereby smart appliances like dishwashers and washing machines are efficiently utilized during peak demand hours.

This smart grid project will demonstrate how community battery systems can enhance grid stability and decrease overall electricity costs by practicing “peak shaving.” Homeowners can avoid higher peak power costs during evening hours when multiple appliances are typically running after Valence Technology dynamic energy systems kick-in to power the smart appliances.

“Valence Technology is proud to be involved with a project as pioneering as the Discovery at Spring Trails smart grid community,” said Robert L. Kanode, president and CEO, Valence Technology. “By significantly reducing homeowners' energy costs through peak shaving, community storage applications will gain acceptance in the marketplace. Valence Technology is well-positioned to provide proven, field-tested dynamic energy systems that will enable greener, smarter and more efficient energy use.”

As part of the regional demonstration project entitled “Technology Solutions for Wind Integration in the Electric Reliability Council of Texas (ERCOT),” the “Smart Grid Community of the Future” will serve as a test model for the development of future distributed energy-generation communities utilizing clean technologies. The project includes improved technologies to monitor the ERCOT electric grid and expanded smart portal capability to support demand response in the new development, Discovery at Spring Trails. With $13.5 million in funding from the U.S. Department of Energy, the $27.4 million project is scheduled to break ground this year.

The team for this “Smart Grid” project includes CCET, Valence Technology, Southwest Research Institute, Electric Power Group, EcoEdge, CenterPoint Energy, Oncor, American Electric Power, Sharyland Utilities, Land Tejas Developers, Montgomery County Municipal Utility District 119, Xtreme Power/Energy Xtreme, General Electric, GridPoint, Direct Energy, Drummond Group and Frontier Associates.

Valence Technology stationary energy storage systems are designed for use in frequency regulation, community energy storage, telecommunications back-up power, auxiliary power units and uninterruptible power supply projects around the globe.

About Valence Technology, Inc.

Valence Technology is an international leader in the development of safe, long-life lithium iron magnesium phosphate energy storage solutions and provides the enabling technology behind some of the world’s most innovative and environmentally friendly applications. Founded in 1989, Valence today offers a proven technology and manufacturing infrastructure that delivers ISO-certified products and processes that are protected by an extensive global patent portfolio. Headquartered in Austin, Texas, Valence Technology is strategically aligned by five business segments: Motive, Marine, Stationary, Industrial and Military. In addition to the corporate headquarters in Texas, Valence Technology has its Research & Development Center in Nevada, its Europe/Asia Pacific Sales office in Northern Ireland and global fulfillment centers in North America and Europe. Valence Technology is traded on the NASDAQ Capital Market under the ticker symbol VLNC. For more information, visit www.valence.com.

About CCET

The Center for the Commercialization of Electric Technologies (CCET) recently received the $13.5 million grant from U.S. Department of Energy aimed at better integrating the vast Texas wind energy resources into the state’s electric transmission, distribution and metering system. The project represents a multi-faceted synergistic approach to managing fluctuations in wind power in the large Electric Reliability Council of Texas (ERCOT) transmission grid through better system monitoring capabilities, enhanced operator visualization and improved load management. CCET is leading a coalition of Texas electricity market participants, including Valence Technology, in carrying out the demonstration project. For more information, visit:

http://www.electrictechnologycenter.com

A Shout Out for Scruffy...

GATA Bill Murphy's Lemetropole Cafe market letter...

http://agoracom.com/ir/ECU/forums/discussion/topics/412960-a-shout-out-for-scruffy/messages/1360171#message

Good morning Bill. As I read through the morning (non-mainstream) news I see a huge pervasive rot threatening all aspects of our financial lives.

Here is a short list of what we are up against:

1 A network of elitists bankers who have a get out of jail free card, who contribute to both sides of political campaigns, who migrate employees to key positions in the administration and in the regulatory agencies that are supposed to assure fair market practices.

2 A history of million dollar fines (if any) for billion dollar crimes and no jail time for the biggest crooks.

3 Total control of mainstream media to the point of effective propaganda. Has anyone read or heard anything re the recent CFTC bombshells on MSNBC?

4 Regulations that destroy any transparency in our markets. The big bankers are protected by the regulators that are commissioned to protect us against them.

5 Naked shorting by the elite insiders to the detriment of all of us investors. Every naked short sale recorded and is identifiable, yet I have never heard of a single person, or clearing house, or brokerage receiving as much as a fine let alone jail time.

6 Evidence repeatedly provided to regulators and compliance agencies of the US that is NEVER acted on. Not one of the exposures leads to cleaning up of the markets, to firing of the idiots in charge, to jail time for those obviously complicit graft enablers, nor intervening in the crimes in progress.

7 A strong $ policy based on propaganda and manipulation. Does anyone with one eye and two brain cells believe the inflation #s? ... the unemployment numbers? ..that we have "turned the corner" or have begun the recovery? ..that the ObamaCare will cut the deficit? .. that the treasury is not the biggest buyer of treasuries via buy-backs?

8 Gambling casinos (crimex/nymex/lbma) that set the prices on physical commodities.

9 "Physical Markets" that have no physical.

10 Bribes offered to keep options holders from demanding physical delivery.

11 ETF’s that can’t be audited. Anyone who has read the prospectus and thinks that he/she is investing in physical should not be allowed to wield a check book.

12 Rules that allow options to be settled with (fraudulent) ETF shares.

13 A Fed that can keep its books hidden from the public. I was going to say from congress, but congress is part of the problem and we cannot count on them to act responsibly.

14 A government backed stock market manager (PPT) to get people to continue to "invest" in a stock market balloon while savings returns are miniscule to nonexistent.

15 A steady move to shun new purchases of US treasuries by the rest of the world.

16 Most moves up recently in the US $ have not been because of anything that indicates the $ is healthy, but because the currencies of the rest of the world are down graded by US based rating agencies. This while ALL currencies are pushed around by markets dominated by US and UK bankers.

17 Assassination attempts on whistle blowers.

18 And not the last, not the least, but one of the most egregious, a congress and administration that panders to special interests and totally disrespects, ignores, and denigrates the citizens, as it shoves this nation down the socialistic toilet.

And once again, as has often been repeated throughout history, gold and silver are the last shelter and protection one can have against corrupt public and financial institutions.

Thanks Bill and all the GATA organization. Many people are now in a better position to see what is going on and to protect themselves.

Scruffy

AIG Gets Away With It:

http://jessescrossroadscafe.blogspot.com/2010/04/aig-gets-away-with-it.html

Posted by Jesse at 10:09 AM
06 April 2010

Do you think the paper shredders and 'delete keys' were working overtime?

Do you think the Justice Department was highly motivated to nail the guy who could probably implicate the biggest of the TBTF banks and their enablers in the government?

Do you think the American President was just playing you when he said, "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street."

Do you think Joe knows where a lot of the bodies are buried - on Wall Street and in London and Washington?

Do you think it pays to be a 'Friend of Lloyd' and a feeder source of campaign contributions to most of the Congress?

Do you think the people are just itching to vote out every incumbent in November?

Do you think the spineless lack of serious investigation and reform is setting the US up again for another, even bigger, fianncial scandal and crisis?

You might be right.

******************************************

No Criminal Charges Likely in AIG Collapse

By Armen Keteyian
CBS News
April 2, 2010 6:43 PM

CBS NEWS has learned that former AIG executive Joseph Cassano - the prime focus of the investigation into its collapse - will meet with Department of Justice attorneys next week in what will likely be an end to the two year criminal investigation into the company.

Sources tell CBS News that the criminal case against Cassano - once called "the Man who Crashed the World" - has "hit a brick wall" - meaning that it is likely no one will be held criminally liable for the downfall of the company that triggered a $182 billion dollar federal bailout.

Sources tell CBS News federal investigators have been unable to uncover any evidence that Cassano lied to his bosses or shareholders about financial problems at AIG.

In recent months, Cassano's lawyers - citing internal documents - argued that he never broke the law. Instead, he simply got caught up in a financial tsunami that engulfed Wall Street.

http://tiny.cc/ynryn

Posted by Jesse April 6, 2010
http://jessescrossroadscafe.blogspot.com/2010/04/aig-gets-away-with-it.html

Senior SEC Employee Warns of Potential Municipal Bond Market Collapse:

Sunday, April 4, 2010
By Rick Bookstaber

http://rick.bookstaber.com/2010/04/municipal-market.html

This represents my personal opinion, not the views of the SEC or its staff.

My first blog post was in June, 2007. It was titled “What sorts of crises am I worried about now”. My answer was housing and credit. With the benefit of hindsight, this might be considered a no-brainer, although at the time it was not so clear where things would go.

Now as the dust settles from the crisis that emerged in 2008, we can start to think about what might come next. And yes, the crisis really is settling down, despite the alarmists who, thinking we were in a 1930’s style depression, pushed the panic button and stuffed their mattresses (or portfolios) with cash. For whatever reason, be it astute government intervention or the natural healing process, we are looking back at something along the lines of a bad, credit-driven recession.

I don’t think we will see a big crisis emerging for some time in banks, hedge funds or derivatives, mostly because, like with a knockout punch, the risks that matter don’t come from where you are looking. Unless the current push for legislation is a failure, which, of course, still remains to be seen, we will have steely eyes hovering over these sources of crisis. It will be awhile before the guards start dozing off at their posts.

So, where to look next. To see other potential sources of crisis, let’s first recount the lessons learned from this crisis:

1. Problems occur when things get leveraged and complex (and thus opaque).

2. If the problems occur in a very big market, especially in a very big market like housing that is tied to the credit markets, things can go systemic.

3. The notion that you can diversify by holding a geographically broad-based portfolio, (“there has never been a nation-wide housing recession”), works fine – until it doesn’t.

4. A portfolio that is apparently hedged can blow apart. So we have to look at the gross value of positions, even if they are thought to be hedged.

5. Don’t bet on ratings, because rating agencies are conflicted and might not be all too dependable at their job.

6. Defaults are never easy to manage, but it gets worse when there are a lot of them happening at the same time. It is harder to manage the mess, and there is less of a stigma in defaulting. And it is all the worse when, as is the case in the housing markets, those defaulting are not businessmen. As an added complication, with housing the revenue that we thought was there really wasn’t. Income that was supposed to be there to finance the mortgages – even when that income was fairly stated – became committed to other areas (like second mortgages). .

Well, guess where we have a market that is (1) leveraged and opaque, that is (2) very big and tied to the credit markets; and is (3) viewed by investors as being diversifiable by holding a geographically broad-based portfolio; with (4) huge portfolios where assets and liabilities are apparently matched; and with (5) questionable analysis by rating agencies; and where (6) there are many entities, entities that may not approach default with business-like dispatch, and that have already mortgaged sources of revenue that are thought to support their liabilities?

Answer: The municipal market.

Leverage and Opacity. Leverage in the municipal market comes from making future obligations to employees in order to pay them less now. This is borrowing in the form of high pension benefits and post-retirement health care, but borrowing nonetheless. Put another way, in taking lower pay today, the employees have lent money to the municipality, with that money to be repaid via their retirement benefits. The opaqueness comes from the methods of reporting. For example, municipalities are not held to the same standards as corporations in their disclosure.

Size and potential systemic effects. That this is a big market in the credit space goes without saying.

Diversification. Geographic diversification would give a lot more comfort for municipals if it hadn’t just failed for the housing market. Think of why housing breached the regional barriers. It was because similar methods of leveraging were being employed through the country. So the question to ask is: Are there common sorts of strategies being applied in municipalities across the nation?

Gross versus net exposure. The leverage for municipals is not easy to see. It might appear to be lower than it really is because many, including rating agencies, look at the unfunded portion of these liabilities. They ignore the fact that these promised payments are covered using risky portfolios. And not just risky -- the portfolio might apply hefty (a.k.a. unrealistic) actuarial assumptions of asset growth.

Rating agencies. In terms of the work of the rating agencies, here are two questions to ask. First, list the last time they did an on-site exam of the municipalities they are rating. Second, are they looking at the potential mismatch between assets and liabilities, or simply at the net – the under funded portion of the portfolio.

Defaults. Municipalities are not quite as numerous as homeowners, but there certainly are a lot of them. And they have the same issues as homeowners. Granted, they will not pour cement down the toilet before walking away. But they have a potentially equally irrational group – the local taxpayers – to deal with.

Oh, and just as homeowners took their income and locked it up via secondary loans, much of the tax base for municipalities is already mortgaged, through the sale of tax-related revenues streams like tolls and parking fees. Indeed, although general obligation bonds are considered the cream of the crop, they might just as well be regarded as the residual claim after anything with solid fee streams has been sold off.

Once a few municipalities default, there is a risk of a widespread cascade in defaults because the opprobrium will be lessened, all the more so if the defaults are spurred along by a taxpayer revolt – democracy at work.

Red Flags and Scary Charts:

Posted on 04/03/10 at 2:40pm by John Nyaradi

This week we went to “Red Flag Flying” status, expecting lower prices ahead. Aside from our primary technical indicator shifting to a bearish posture, numerous technical indicators and fundamental elements are flashing red in spite of the euphoria in the general financial press.

On March 31st, we entered a couple of inverse ETF positions in our Standard Portfolio, one inverse ETF in our leveraged portfolio and bought an S&P put option in a new options trading system that I am sending to Standard and Pro members.

To better understand why we shifted to a “short” posture let’s look at some of the factors going into that decision.

Our primary indicator is a proprietary long/short momentum indicator that went to a “sell” signal this week.

To confirm that indicator, I also look at a number of other technical and fundamental indicators to give us the highest probability of success. Some of these are widely followed indicators and some are exclusive to Wall Street Sector Selector.



Chart courtesy of stockcharts.com

In the S&P chart, we see the RSI at highly overbought levels in the top display, with above 70 becoming overbought and subject to a correction. At some point, these conditions generally will correct themselves with a substantial price decline which you can see occurring recently in November, 2009, and again in January, 2010.

In the bottom display, one of the most reliable indicators I know of, MACD, has just shifted to a “sell” signal, indicating declining momentum and the possibility of a decline ahead, just as previously occurred in November and January.

Also, a glance at the Russell, Wilshire and NASDAQ indexes all present similar pictures and confirm substantial weakening and what very well could be a topping out of the current rally.

We also look at various market breadth indicators and investor sentiment indicators as well as the VIX and find extreme complacency and bullishness on all fronts which supports and adds validity to our primary thesis of lower prices ahead.

And then as a final step, I look at macro conditions and fundamental trends that could confirm or weaken our overall view of market conditions. These include but are not limited to interest rate movements, economic reports, news and corporate earnings as well as oncoming events that are just around the bend but could impact market prices over the next few weeks.

After all that analysis is complete, I look at and choose the particular Exchange Traded funds and now option positions that could offer us the highest likelihood of success and potential profitability.

Looking At My Screens

Regarding fundamentals, two charts are particularly scary. One is from Credit Suisse and is reprinted below.



This chart depicts the monthly mortgage rate resets and you can see how these peaked in 2007-2008 in the red box on the left and set off the sub prime debacle that eventually led to the worldwide financial crisis that still bedevils us.

What’s scary about this is that after a lull in 2009, we see another spike in mortgage resets coming in 2011 and 2012 framed by the red box on the right. This time the culprits are not sub prime loans but Option Adjustable and Alt A loans resetting that could easily trigger another round of foreclosures, bank failures or “too big to fail” actions by the U.S. government.

Judging from the carnage we saw the last time the graphs on this chart were this high, a return to these levels could easily be the catalyst for a double dip recession which would almost be certainly worse than the one we’ve just been through because unemployment is worse, more national debt, etc, etc. Finally, to make matters worse, the Fed terminated their $1.25 Trillion mortgage buying program on April 1st which will create a further drag on this market.

The second scary chart is what’s going on in the U.S. Treasury market as evidenced in the chart of the U.S. 30 Year Treasury Bond below.



Chart courtesy of stockcharts.com

This frankly is a truly terrifying chart because, as you know, Treasury prices move inversely to interest rates and so as interest rates rise, Treasuries drop in price. In late March you can see the huge gap down in Treasury bond prices as interest rates rose sharply and that trend continued this week and even on Friday in response to Friday’s unemployment report.

As you know, rising interest rates usually spell lower stock prices and this sharp reversal in the direction of interest rates is a serious development as this could easily affect the fragile recovery underway, not to mention the real estate market, both commercial and residential, both of which are still in critical condition.

Last week’s Treasury bond auctions were weakly received and started the jump in interest rates. Further problems lie in supply/demand metrics as we’re issuing record amounts of debt this year including more than $40 billion this coming week starting April 5th. With the Fed out of the mortgage market and China scaling back its holdings of U.S. debt for three months straight, interest rates could continue to rise as the “bond vigilantes” look like they’re about to take control of this critical game.

So, adding it all up, these are treacherous times in spite of all the happy talk we get from the general financial media.

The View from 35,000 Feet

This week the news was mixed again as the bulls and bears struggled for domination of the markets. On the upside, the Case/Shiller housing price index showed improvement along with an improving consumer confidence report and the much ballyhooed employment report on Friday indicated that north of 150,000 jobs had been created in March.

On the negative side of the ledger was the fact that nobody mentioned that we need 100,000 plus monthly new jobs just to hold even and so unemployment remained steady at 9.7%, that the jobs created fell far short of consensus estimates and that U6 unemployment, the “full” unemployment reading of unemployed plus underemployed rose to 16.9% or about one in six people not employed or not working as much as they want.

But probably most dismal of all was the fact that long term unemployed ranks swelled to 6.5 million, that is people who are jobless 27 weeks or beyond, and a gain of more than 400,000 for the month or 44% of all unemployed, an all time record.

No matter how you slice it, these are not pretty numbers.

Other negative news focused on the Chicago Purchasing Managers Index declining, factory orders dropping and construction spending declining.

Finally, let’s throw in some dribs and drabs like commercial real estate loan losses kicking in to the tune of a half trillion in 2011, the ongoing Greek tragedy and drama that will return to center stage in mid April when 15 billion worth of Euros will have to be refinanced and a new national health care plan that will be “fully funded.” (When was the last time the Federal government fully funded anything?)

Sadly the litany goes on with greater numbers of Americans filing for bankruptcy protection in March than at any time since October, 2005, when the bankruptcy codes were tightened, a total of more than 158,000 filings in March alone, or nearly 7,000 per day, and states and municipalities edge closer to the brink of default as tax revenues continue to shrivel.

Where is the Easter Bunny when we really need him?

What It All Means

What it all means is that, in my opinion, all the happy talk about “happy days are hear again” (the theme song from the Great Depression) is based on a foundation of skating on very thin ice and that we are traveling through very dangerous days with the very likely possibility of a double dip recession lurking like an iceberg in the path of the U.S. Titanic.

However, no matter what happens or what we read, we will stick with our indicators and go with the flow of the market in whatever direction it takes us. One can never underestimate the madness of crowds and the power of the Federal Reserve.

The Week Ahead

The week brings some important economic reports including:

Monday: March ISM Services, February Pending Home Sales

Tuesday: FOMC Meeting Minutes, February Consumer Credit

Thursday: Initial Unemployment Claims, Continuing Unemployment Claims

Friday: February Wholesale Inventories

Sector Spotlight:

Leaders: Gold Miners, China, Russia

Laggards: Biotech, EAFE (Europe, Asia, Far East)

I was in Germany this week where the soccer playoffs were filling the bars and restaurants with cheering fans and where patience is growing thin with the Euro and European Union and their troublesome friends in the Club Med countries.

Now I’m home for the holiday weekend and wish you peaceful days and happy times with your families and friends. Spring is here (although it snowed in Bend today) and I look forward to continuing our work together through these interesting times.

Wishing you a great weekend wherever you may be,

John

http://www.benzinga.com/205571/red-flags-and-scary-charts

All’s Well?...

Here are a couple of uplifting titles to stories in today’s mainstream media:

From MSNBC: “Stocks boosted by upbeat economic reports”

From CNNMoney.com: “Stocks pop on jobless claims”

Wow. I don’t know about you, but I’m optimistic.

But wait. Could these titles be misleading? I don’t think I need to answer that.

Apparently the good news was 439,000 new people filed jobless claims in the week ended March 27, down 6,000 from an upwardly revised 445,000 the previous week. And outplacement firm Challenger, Gray & Christmas Inc. showed that planned job cuts accelerated substantially in March.

So, almost half a million people file new jobless claims in a week and employers accelerate layoffs and that’s considered good news these days. I’d really hate to hear some bad news.

In addition to this “good” news, we have a new national employment report published by payroll giant Automatic Data Processing Inc. that indicates private employers unexpectedly shed 23,000 jobs in March despite concensus analysis calling for an increase in jobs. And the Commerce Department reports that U.S. construction spending fell to a seasonally adjusted annual rate of $846.23 billion, the slowest rate in over seven years, as activity softened in every major sector from homebuilding to public construction projects. Meanwhile, personal consumption expenditures increased 21.7 times more than personal income over the most recently reported month according to the Bureau of Economic Analysis.

That’s not to say that every bit of news that comes out is completely negative. The Commerce Department reported yesterday that a barometer of capital spending by businesses climbed. Non-defense capital goods orders, excluding airplanes, rose 2.0% in February. But that followed a big drop in January of 4.4%, suggesting businesses uncertain about the economy remain cautious about spending plans.

And there’s even some actual good news out there. The Institute for Supply Management’s manufacturing index rose to 59.6 in March from 56.5 in February, marking eight straight months of expansion in the sector.

All in all, however, we still firmly believe that the bad seriously outweighs the good. None of the real issues that brought us into the 2008 financial meltdown have been addressed. Banks’ balance sheets are still terrible, especially if you take out the impact of accounting changes that were allowed last year. The overhang of derivatives continues to grow. And as bad as the real estate situation is, it’s about to get a lot worse.

Look, we don’t like to be the bearer of bad news all time. But we have to tell you what we really think based on all the research and analysis that goes on over here. And what we think is that the far wall of the hurricane is still heading toward the economy. When it’s going to hit we really can’t say, though it will probably be sooner rather than later. The catalyst will likely be fear caused by one single and unforeseen or known but ignored event (a black swan). The event will create a panic in the markets that will then create a chain reaction like a house of cards falling. So as painful as it may be for your psyche, it’s prudent for you to remain wary of this “recovery.” All is certainly not well.

http://www.caseyresearch.com/displayCdd.php?id=389

Lobbyists Gone Wild: The K Street Hustle & Obamacare...

By Keith Johnson

Oooh snap! Looks like we’ve been right all along. All the big K Street money pumped into the House and Senate has been overwhelmingly one-sided in favor of Obama’s horrendous new healthcare legislation. Go figure. According to a study released over the weekend by “The Center for Public Policy”, a non-partisan public interest think tank in Washington D.C., it is estimated that a record $120 million was spent lobbying for health reform. In addition to direct lobbying, some of the top firms also rewarded members of Congress with campaign contributions through political action committees and individual lobbyist donations. The largest of these firms, Patton Boggs LLP, contributed more than $55,000 almost exclusively to Democrats.

Patton Boggs represents Bristol-Myers Squibb, one of the largest pharmaceutical companies in the nation and the eighth largest corporation in the United States. On January 21, 2010, Patton Boggs was one of several big name health insurance, pharmaceutical and hospital lobbying organizations whose top executives got together to throw a fundraiser for Massachusetts Senatorial candidate Martha Coakley in hopes of landing her the Democratic seat and the crucial 60th vote needed to pass the healthcare takeover bill. The other top firms that participated (along with a list of the companies they represent) are as follows:

Capitol Hill Strategies:

Amgen—the nation’s largest biotechnology firm
BIO—a muli million dollar biotechnology firm
Merck—the largest pharmaceutical company in the world
Pharmaceutical Researchers and Manufacturers of America–
a trade group representing pharmaceutical and biotechnology companies

Grover Park Group:

Blue Cross—a federation of 39 health insurance organizations
Pfizer—a pharmaceutical company, ranking number one in sales in the world

Duberstein Group:

Novartis—a pharmaceutical company ranking number one in revenues and three in sales
Sanofi-Aventis—a pharmacuetical company that ranks number four in sales worldwide

Mehlman, Vogel, Castagnetti:

Humana—the fourth largest health insurance company in the United States
Abbott Laboratories—a multi billion dollar pharmaceuticals healthcare company
General Electric—multi billion dollar corporation dealing in many health related sectors

Elmendorf strategies:

UnitedHealth Group—the nations largest insurance company

Heather Podesta & Partners:

Cigna—the nation’s fifth largest health insurance company
Eli Lilly—a multi billion dollar pharmacuetical company that ranks tenth in sales

Of the over 17,000 lobbyists in Washington D.C., The Center for Public Integrity ranks Patton Boggs as numero uno. In terms of healthcare reform, they are followed by Alston and Bird, who represent Aetna, the nation’s third largest health insurer. Coming in at number three is Foley Hoag, who also represent Pfizer as well as Eli Lilly, Amgen and Merck. Tied for fourth place are Podesta Group and Capitol partners. Dutko Worldwide rounds out the top five and they also lobbied for UnitedHealth, PhRMA, and medical device firm Medtronic Inc.

Of those lobbying firms’ big name clients, Pharmaceutical Researchers and Manufacturers of America alone spent $26.1 million lobbying for Obamacare in 2009, making it the single most expensive lobbying effort in history. During the week leading up to the vote on the legislation, PhRMA launched a multi million dollar ad blitz in 43 districts of potential swing Democrats to help secure passage. And in this election cycle, PhRMA has contributed $30,300 to Dem’s compared to $13,000 to Repub’s. Overall, PhRMA has spent well over $100 million on ad campaigns promoting health care reform legistlation. According to his wikipedia bio, PhRMA’s outgoing CEO Billy Tauzin ”was a key player in 2009 healthcare reform negotiations that produced pharmaceutical industry support for White House and Senate efforts. Reportedly, proposals for Medicare Part D cost reductions and permitting drug importation from Canada were dropped in favor of $80 billion in other savings.” That’s right, he helped write the stinking bill.

The largest health insurance providers in the nation are UnitedHealth Group, WellPoint, Aetna, Humana and Cigna. Ever since the healthcare debate began over a year ago, shares of Cigna, UnitedHealth Group and WellPoint have been up an average of 120%.

Upon passage of the bill, health insurer’s stocks soared with Aetna hitting a 52 week high. The share price of Cigna surged 375% compared to 46% for the stock market overall (as measured by the S&P 500) since November 2008.

It should be noted that Aetna has been a major supporter and campaign contributor to the campaigns of Max Baucus (D-MT) of the Senate Finance Committee who received $56,250 in donations and Senator Joe Lieberman (I-CT) who received $110,000. Todd M. Schoenberger, Managing Editor of “Taipan’s Tipping Point Alert” wrote recently that “One day following a vote in favor of healthcare reform legislation, stocks turned higher led by the healthcare sector. Despite the concern of many Wall Street analysts, any negative sentiment surrounding the healthcare sector about higher taxes and pressure on bottom lines quickly subsided as everything from managed care to medical device stocks traded higher with heavy volume.”

Hospital shares also surged. The day after the House of passed the bill, shares of Health Management Associates, Tenet Healthcare and Community Health Systems all jumped 11%, 9%, and 6% respectively.

It should be clear by now that the major players in the healthcare industry overwhelmingly lobbied in support of Obamacare and have and will continue to reap vast rewards.

So then you may ask who exactly is this great villain the Democrats have dubbed as the evil “health insurance industry”? The name that consistently comes up is America’s Health Insurance Plans (AHIP). According to wikipedia, “America’s Health Insurance Plans (AHIP) is a national political advocacy and trade association with about 1,300 member companies that sell health insurance coverage to more than 200 million Americans and is thereby funded by the premiums they pay.”

But AHIP not only represents the top health insurance companies in the nation, it also represents the smaller companies that will no doubt be thrown under the bus or absorbed by larger concerns. So it makes sense why they were chosen to act as the controlled opposition. They were the ones often cited as the big bad insurance industry that Nancy Pelosi referred to in response to a heckler at a Democratic rally who yelled “You’ll burn in Hell for this.” AHIP President Karen M. Ignagni often plays the villain as she did on the Oprah Winfrey show opposite Sicko Director Michael Moore.

But this two-faced organization showed their true colors a long time ago. Miami Herald journalist John Dorschner reminds us in a March 23rd article that “In November 2008, just days after Obama’s landslide victory, America’s Health Insurance Plans, a trade group, made a stunning announcement, saying it favored universal coverage and supported a law that would stop insurers from rejecting applicants because of preexisting conditions. “Universal coverage is within reach,” the group said in a historic press release. After being adamantly opposed to reform during the Clinton years, AHIP said it had changed its mind — based on one condition: Any reform plan had to require that all individuals have insurance or pay stiff penalties.”

And just recently, AHIP has come out in full support of Obamacare. According to a TIME Magazine article: America’s Health Insurance Plans (AHIP), the industry trade group, has agreed to sign on to a new, 50-state health care reform implementation effort, provisionally called Enroll America, which is being organized by Ron Pollack of the pro-reform group Families USA. “We are participating in it,” says AHIP spokesman Robert Zirkelbach. “The goal is to get everyone covered.”

On the night the House passed the dreaded Obamacare legislation, Obama stated, “Tonight, we pushed back on the undue influence of special interests. … We proved that this government — a government of the people and by the people — still works for the people.” Sure—Here’s a guy who received more then three times the campaign contributions from the pharmaceutical industry than John McCain or $3.58 for every$1 received by his Republican competitor. And those stats come straight out of the Center for Responsive Politics, a Washington-based research group.

Yeah, Obama can come up with some eloquent words, but as we’ve pointed out, this is nothing but a windfall for the big insurance companies, the pharmaceutical industry and device manufacturers. It’s an outright raping of the American people by a government of the special interests and by the special interests.

http://republicbroadcasting.org/?p=7709

------------

Keep calling it a conspiracy theory America...

“Communism, or more accurately, socialism, is not a movement
of the downtrodden masses, but of the economic elite, because
communism, is about monopoly capitalism.”

-- Gary Allen, "None Dare Call It Conspiracy"



It's only 93 pages, you can read it in a single sitting,
and you can read it and download it for free at this link:

If you haven't read it, do so tonight.

http://www.scribd.com/doc/2297676/conspiracy-Gary-Allen-None-Dare-Call-it-Conspiracy-english-rarereactor

VIDEO - Fundamental & Technical Analysis of the S&P 500's Daily & Weekly Charts:

Every Sunday evening, I post a video here and on a few other sites that shows the technical analysis of the $SPX daily and weekly charts. I also show the Dow Jones Industrial Average, the Nasdaq Composite, and the Russell 2000 charts, and talk about what kinds of news, earnings reports, and economic reports to pay attention to in the coming week.

Happy Trading next week,
zigzagman

The Government's Big Secret:

The Government's Big Secret:

Dear Reader,

The federal government’s big secret isn’t that its spendthrift ways are destroying the country; it’s that it knows its spendthrift ways are destroying the country and it’s doing absolutely nothing to remedy the situation. In fact, all recent government action has exacerbated the decline. And it knows that too.

For instance, “The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds” (link here) reports, in black and white, that the Social Security unfunded liability is a whopping $15.1 trillion. Furthermore, the “2009 Annual Report of The Board of Trustees of The Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds” (link here) reports that the Medicare unfunded liability is an even more staggering $36.4 trillion.

These “trustees,” mind you, are not some outside government watchdog group either. The Managing Trustee of both boards is none other than Secretary of the Treasury Tim Geithner. And if Geithner’s aware of the situation, you know Obama and Congress are, yet you never hear anything about this reported in the mainstream media. What you get instead is pushed-through health care legislation that will add even more costs to Medicare – and the mainstream media cheers.

Want more? The 254-page “2009 Financial Report of the United States Government,” which is produced by the Treasury Department, is full of goodies illustrating just how deep in the quagmire we are.

Check out the chart below, which shows the government’s projection of debt held by the public in relation to GDP. And keep in mind that this is not what’s called the “National Debt,” which includes intragovernmental debt but just what can be considered “net debt,” or debt held by the public.

[Note: Debt held by the public is all the federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside the U.S. Government. Intra-governmental debt is the Government Account Series securities held by government trust funds, revolving funds and other special funds, which are generally required to invest in U.S. Treasury securities. The federal government competes with private industry for credit, therefore the level of debt held by the public shows how much of the nation’s wealth has been absorbed by federal government expenditures. Interest on the public debt is a direct expense of the taxpayers paid in cash by the Treasury. Intragovernmental debt and its interest, on the other hand, aren’t necessarily paid in cash from the current budget. Instead, it often represents a liability on a future budget until the government agency holding the debt needs to cash it in (i.e. when the baby boomer social security payments come rolling in).]




Research shows that when debt reaches 75% to 100% of a country’s GDP, a default or restructuring may not be far behind. The U.S.’s net debt is already 57.4% of nominal GDP. So, by the government’s own predictions, we could expect a debt default or restructuring around 2020.

The document also reveals that rapidly growing interest costs on the national debt together with spending on major entitlement programs will absorb approximately 100 cents of every dollar of federal revenue by 2020. This is astounding. By the government’s own calculations, interest on the debt and spending on entitlement programs will eat up everything the U.S. Government takes in before a penny is spent on anything else. That’s a recipe for disaster if ever there was one. And this document was written before Obamacare was on the books.

Now, going back to that bit about the government knowing its recent actions are only going to exacerbate the decline, I’d like to point to a recent article from moneynews.com which reports that even the former director of the Congressional Budget Office, Douglas Holtz-Eakin, thinks Obamacare will bankrupt the U.S.

Here’s an excerpt from the article:

While the Congressional Budget Office reported that President Barack Obama’s healthcare bill would lower federal deficits by $138 billion, the budget office “is required to take written legislation at face value and not second-guess the plausibility of what it is handed,” says former CBO director Douglas Holtz-Eakin.
“So fantasy in, fantasy out.”

Strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The healthcare reform legislation would raise, not lower, federal deficits, Holtz-Eakin writes in The New York Times.

“Removing the unrealistic annual Medicare savings ($463 billion) and the stolen annual revenues from Social Security and long-term care insurance ($123 billion), and adding in the annual spending that so far is not accounted for ($114 billion) quickly generates additional deficits of $562 billion in the first 10 years,” Holtz-Eakin points out.

“And the nation would be on the hook for two more entitlement programs rapidly expanding as far as the eye can see.”

With that in mind, it looks like the U.S. could reach the danger zone of debt to GDP well before 2020. Something to think about…
Politicizing Monetary Policy

By Vedran Vuk
Politicians are notorious for economically illogical stands and incredulous claims. Just last week, the public was told that insuring 30 million more Americans would reduce healthcare spending. Now, a group of 130 Republicans and Democrats are calling on the U.S. Treasury to label China as a “currency manipulator” in order to justify enacting import tariffs.

With this label, lower Chinese interest rates could be considered a business subsidy. Hence, this would qualify as an unfair trade practice enabling retaliatory tariffs. Of course, lower interest rates are indirect subsidies. Notice the jubilation on Wall Street when Bernanke lowers rates. But if China is guilty of currency manipulation, then the U.S. and every other country on Earth is an equal culprit.

Congress’s plan is so deeply ignorant that it’s difficult to respect its position as a legitimate opinion and not a gaffe or a malicious Machiavellian maneuver. Every central bank in the world manipulates currencies, including our own Federal Reserve. Perhaps, Congress will next request the EPA to confirm that forests actually do have trees.

First of all, the defined role of every central bank is to maintain some form of price stability. Naturally to do this, central banks must manipulate their own currencies through interest rates. The second common goal is to maintain full employment. Keeping the currency down to promote exports certainly falls into this role.

Failure to adequately manipulate currencies deserves more criticism than China’s export driven strategy. After all, every central bank fails at the job of manipulating currencies, eventually causing inflation and other severe macroeconomic disruptions.

Last year, politicizing monetary policy was news, but few seem as concerned today. Remember the attacks launched at Ron Paul’s Federal Reserve Transparency Act (H.R. 1207). When Paul’s bill was introduced, lobbyists were immediately hired, think tanks published on the topic, and pundits of all stripes made their opinions known.

The bill was reportedly a gross politicization of the Fed, although it did no such thing. The act only promises to expand the General Accountability Office’s audit powers to cover transactions with foreign banks and governments, transactions made under the FOMC, and certain other currently secretive operations. These audits would be performed long after Fed decisions.

GAO audits would be no more disruptive than releasing FOMC minutes three weeks after a rate decision. Sure, these releases can cause temporary market fluctuations but nothing that would unravel the Fed’s ability to perform currency manipulation – sorry, I meant monetary policy. One could even make the case that Paul’s bill would force the Federal Reserve to be more honest about transactions, thereby reducing politicization and promoting independence.

While Ron Paul’s bill does little to politicize the Fed, the threat of import tariffs over an interest rate disagreement practically takes monetary policy by the reins. Other than Congress directly nationalizing the Fed, little else could be done to politicize monetary policy more so.

Politicizing monetary policy doesn’t stop with Chinese interest rates. Chris Dodd’s new financial overhaul bill would give U.S. Presidents the power to appoint the President of the New York Federal Reserve Bank.

Dodd’s quote on the matter is simply brilliant. Dodd, the intellectual giant, says, “[this process ensures the New York President is] not handpicked by the very bankers the New York Fed is responsible for regulating.” U.S. Presidents have made countless Wall Street-affiliated picks for the Secretary of the Treasury throughout the years. Most recently, this includes Henry Paulson and Robert Rubin, both former high-ranking Goldman Sachs employees. There is no reason to expect more prudent presidential picks for this position either.

When it comes to economics, most Congressmen are fairly clueless. But apparently on monetary policy, they make their usual economic insanities look like pieces of ancient wisdom. After the healthcare bill, who could predict that things would get worse so soon? Well, here we are with Dodd’s bill and a looming China tariff war. Politicizing monetary policy is in full effect.

The Memristor

By Doug Hornig
[Ed. Note: Every month in Casey’s Extraordinary Technology, alongside our investment recommendations, we try to bring you a little entertainment and maybe even a little enlightenment, in the form of new scientific breakthroughs you absolutely need to know about, new products you ought to try, or just plain cool things you’ll want to see. We call this section Research and Development, or R&D for short, and most months it includes one new scientific advance of merit and one new gadget on the horizon. These aren’t investment opportunities today, usually. Just fascinating science. Remarkable achievements. Cool gadgets. And other extraordinary technology. What follows is an example of one such R&D article written by our own Doug Hornig.]

The fundamental architecture of a computer hasn’t changed much in half a century. At the heart of the machine are the same basic languages and chip designs as were there in the 1960s. Sure, computers are much, much smaller. And much, much faster. And they do a whole bunch more – thanks to the flexibility of software that can be written to address nearly any task. But at their root, computers are all composed of just three basic parts: the inductor, the resistor, and the capacitor.

These three fundamental building blocks of the circuit, assembled together in increasingly complex arrays of thousands, millions, or even billions together on a chip, make up the brains of a computer. And for decades it was thought that they were it. The whole enchilada. The only parts necessary to complete any computer, from a PC to a brain. But unlike most things in the engineering world, there was no real mathematical proof this was the case. And this bothered UC Berkeley professor Leon Chua. So he set out to write one.

Along the way to proving the logic of computers, he noticed a piece missing from the puzzle. A fourth basic building block of logic. What he dubbed the “memristor.” You see, way back in 1971, Chua was examining the four properties that make up an electronic circuit: A) electric charge, B) current (or the change in charge over time), C) magnetic flux (the strength of the magnetic field a current produces), and D) voltage (or the change in magnetic flux over time). These four properties could interact in only six possible ways, or combinations – A-B, A-C, A-D, B-C, B-D, and C-D. When he dug in, it was clear to him that there were devices or logical relationships for only five of these combinations. But one, the relationship between magnetic flux and charge, went curiously undefined.

Chua’s proposed device – a small component that could essentially remember what kind of charge last passed through it – filled the gap. But it went relatively unnoticed in the field of computer science for decades after, with just a handful of very interested researchers furthering its study. Why? Well, as far as Chua or anyone else knew, memristors just did not exist. It’s not easy to study something you can’t find, after all.

So, why is this discovery from 1971 suddenly news now? Well, earlier this decade, Stan Williams, a senior researcher at Hewlett-Packard, set out to build a fast, low-power switch by placing two microscopic – atom-level, in fact – resistors in a stack, using the current in one to flip the resistance in the other. He was successful in building the device, but couldn’t seem to predict how it would actually behave. After some digging, three years’ worth apparently, he discovered why – he needed a memristor in his model of the device to complete the logic.

And the reason was simple. He had inadvertently built the first known memristor itself.

And the benefits of the device quickly became clear. It is far faster than any kind of memory circuit on the market today, uses far less power, and has the unique benefit that when you turn the power off, it maintains its “memory.” Not quite getting it yet? Imagine this: yank the plug out of your computer right now as you are reading this. Come back two hours later and plug it back in. Snap, it is instantly back on, exactly where you left off. Neat trick, eh?

And the original author, Chua, is also hard at work on hybrid devices that combine the memristor with traditional components to produce new effects. Like a switch that can store data without dissipating any energy at all.

Don’t expect these devices on store shelves anytime too soon, though. This stuff is so cutting edge, it might take anywhere from a few years to a couple of decades to get out of the lab and into your laptop bag.

The applications of the new device don’t stop with standard computers either. For the past few years, scientists have been building, and discovering, devices and even organisms that appear to behave like memristors. Just as you don’t notice how many particular cars are on the road until you buy the same one, science has a tendency not to notice something all around it until the idea really sets in.

As the community studying this unique new technology catches up to Chua’s work, they have also been taking note of another aspect. Chua proposed, quite astutely, in his very first paper on the subject, that these memristors might be the exact mechanism that makes synapses in the human brain possible. Early research indicates this may indeed be the case.

For decades, computer researchers have toiled away with little success, attempting to build a simulated brain. If memristors do prove to be the key to unlocking the secrets of how the brain works, it won’t just change computing forever, it will change our whole definition of what a computer is and what it is capable of.

The government is sinking its resources into the area now, too. DARPA, the Defense Advanced Research Projects Agency – which has brought us such low-impact inventions as the Internet – recently launched the Systems of Neuromorphic Adaptive Plastic Scalable Electronics Program, SyNAPSE, which sponsors scientists to help create an "electronic neuromorphic machine technology that is scalable to biological levels." In other words, a biologically complex computer with an adaptive brain. A true thinking machine.

Skynet, 1. Humans, 0.

Friday Funnies

During their first joint visit to Haiti, George W. Bush appears to wipe his hand on Bill Clinton’s shirt after shaking hands with a crowd of Haitians. Truthfully, I find this video more insulting than funny, but here’s the clip.
Now here are some pictures and cartoons poking fun at some current and former politicians.







And one cute one…




And with that, dear reader, I bid you good day. David won’t be back from Argentina until mid-next week, so I’ll be here with you on Monday. Until then, thank you for reading and for subscribing to a Casey Research service. Have a great weekend!

Chris Wood
Casey Research, LLC

http://www.caseyresearch.com/displayCdd.php?id=381

ANX - ADVENTRX Pharmaceuticals Inc. Sets Meeting With FDA to Discuss ANX-530 NDA:

ADVENTRX Sets Meeting With FDA to Discuss ANX-530 NDA:

Press Release Source: ADVENTRX Pharmaceuticals, Inc. On Friday March 26, 2010, 8:30 am EDT
SAN DIEGO, March 26 /PRNewswire-FirstCall/

ADVENTRX Pharmaceuticals, Inc. (NYSE Amex: ANX) today announced that it will meet the U.S. Food and Drug Administration (FDA) in Washington D.C. during the last week of April 2010 to review the Company's New Drug Application (NDA) for ANX-530 (vinorelbine injectable emulsion) and the FDA's refusal-to-file letter.

ADVENTRX had requested a face-to-face meeting with the FDA to understand its requirements and define the path to a successful filing of an ANX-530 NDA at the earliest possible time.

"We look forward to meeting with the agency next month to clarify the necessary steps for filing the ANX-530 NDA this year," said Brian M. Culley, Chief Executive Officer of ADVENTRX.

ADVENTRX submitted an NDA for ANX-530 to the FDA in December 2009. The Company announced on March 1, 2010 that it had received a refusal-to-file letter from the FDA regarding that submission. In the letter, the FDA indicated that the data included in the December 2009 NDA submission from the intended commercial manufacturing site was insufficient to support a commercially-viable expiration dating period. The FDA identified only this one chemistry, manufacturing and controls (CMC) reason for the refusal to file. No clinical or nonclinical issues were identified.

About ADVENTRX Pharmaceuticals:

ADVENTRX Pharmaceuticals is a specialty pharmaceutical company whose product candidates are designed to improve the performance of existing cancer treatments by addressing limitations associated principally with their safety and use. More information can be found on the Company's web site at www.adventrx.com

http://finance.yahoo.com/news/ADVENTRX-Sets-Meeting-With-prnews-3495683683.html?x=0&.v=1

SLXP - Salix Pharmaceuticals Ltd. Gets FDA Approval For XIFAXAN®

SLXP - Salix Pharmaceuticals Ltd. Gets FDA Approval For XIFAXAN®

RALEIGH, N.C.--(BUSINESS WIRE)--Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) today announced the U.S. Food and Drug Administration (FDA) has granted marketing approval for XIFAXAN® (rifaximin) 550 mg tablets for reduction in risk of overt hepatic encephalopathy (HE) recurrence in patients 18 years of age or older.

HE is a serious disorder caused by chronic liver failure, resulting in cognitive, psychiatric and motor impairments. This approval was supported by findings from the largest randomized trial of maintenance therapy in HE conducted to date, which assessed the efficacy and safety of XIFAXAN 550 mg tablets and demonstrated a statistically significant and clinically meaningful reduction in the risk of overt HE recurrence.ii The labeling for XIFAXAN 550 mg tablets includes data on both the risk reduction of overt HE recurrence as well as risk reduction of HE-related hospitalization.

http://finance.yahoo.com/news/FDA-Approves-XIFAXAN-550-MG-bw-3571437432.html?x=0&.v=1

This is a live intraday chart:



Here is a quote page that shows the Outstanding Shares, the Float, Average Daily Volume, all of which are very reasonable numbers for the sector this company is in:



Here is a chart showing last night's and this morning's Extended Hours Sessions:



Here is a daily chart that shows SLXP closed at $33.52 and it opened today's regular session at $36.15 with a high of the day at $38.00 even:

Radian Group Inc.- RDN is Up Over 17% Today...

Nice day for RDN (NYSE), up over 17%...

I've done my research on this one, and it's fast becoming one of my favorites.

Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance and related risk management products and services to mortgage lenders nationwide through its principal operating subsidiary, Radian Guaranty Inc. These services help promote and preserve homeownership opportunities for homebuyers, while protecting lenders from default-related losses on residential first mortgages and facilitating the sale of low-downpayment mortgages in the secondary market.

It's up over two dollars today, and I don't see any news behind this big move.



It's breaking up into Blue Sky territory on much higher than average Volume, and all of the technical indicators are looking very Bullish on this daily chart:

Happy Trading, and keep this one on your radar...
zigzagman

A Campaign Begins Today:

A Campaign Begins Today:

Mitt Romney
March 22, 2010

America has just witnessed an unconscionable abuse of power. President Obama has betrayed his oath to the nation — rather than bringing us together, ushering in a new kind of politics, and rising above raw partisanship, he has succumbed to the lowest denominator of incumbent power: justifying the means by extolling the ends. He promised better; we deserved better.

He calls his accomplishment “historic” — in this he is correct, although not for the reason he intends. Rather, it is an historic usurpation of the legislative process — he unleashed the nuclear option, enlisted not a single Republican vote in either chamber, bribed reluctant members of his own party, paid-off his union backers, scapegoated insurers, and justified his act with patently fraudulent accounting. What Barack Obama has ushered into the American political landscape is not good for our country; in the words of an ancient maxim, “what starts twisted, ends twisted.”

His health-care bill is unhealthy for America. It raises taxes, slashes the more private side of Medicare, installs price controls, and puts a new federal bureaucracy in charge of health care. It will create a new entitlement even as the ones we already have are bankrupt. For these reasons and more, the act should be repealed. That campaign begins today.

— Mitt Romney is the former governor of Massachusetts and author of No Apology.

http://corner.nationalreview.com/post/?q=NzgyMzA1NWUwNjA5OTg2ZTUzMTliYzQyOTM1ZmIzNTI

$SPX - End of the Week Chart & Fundamental Analysis

Here is the video I make every weekend that analyzes the daily and weekly charts of the S&P 500's ($SPX) daily and weekly charts. I also mention Fundamental Analysis items you need to be aware of in the coming week.

Happy Trading next week...
zigzagman