Credit Crisis, Outrage, Far From Over:

by Bob Chapman
Posted: March 27 2010

Bernanke re-nominated, outrage at banks, insolvency the real state of banks, crime pays when you are at the top, sovereign debt crisis around the world, debt and derivatives products were all just a ponzi scheme, the problem wont go a way when the system is purged, PIMCO Bill Gross warns of inflation, big cutbacks in services...

The re-nomination of Ben Bernanke, as Chairman of the Federal Reserve, has to be one of the ultimate political insults, particularly coming from Republicans, as did his predecessor, Alan Greenspan, both have taken America and the world down the sewer. Ben Bernanke saved Wall Street, the banks, insurance companies and a myriad of other Illuminist firms.

This is the same Ben who refused to release records to uncover where $2 trillion had gone in the loan program that followed the collapse of Lehman Brothers. This is an appellate defeat for the Fed. We would expect they will next appeal to the Supreme Court. This is important to the Fed, because a loss would not only expose which institutions were insolvent, US and foreign, but it would expose what collateral was accepted for these so-called loans, and have they been paid back?

The Fed and American and foreign bankers gambled and lost, so it was up to American taxpayers to bail them out. Needless to say, these actions were outrageous. The Fed not only had no authority to do what they did, but they did, but they also suborned perjury. We wonder how the Appeals Court missed that? The Fed has buried our country in debt, allowed unbelievable leverage and absolutely refuses to tell us what they are up too. Except for a few in Senate and House hearings, questioning is a total farce. The Fed has done as it pleases for 97 years and that has to stop. We cannot allow Ben Bernanke to lie before Congress and get away with it either. We also cannot allow any corporation or financial institution to keep two sets of books and not mark their investment to market.

The financial world is a very small world and everyone knew what was going on at Lehman, just as they knew what Berne Madoff was up too. As usual a conspiracy of silence prevailed in order to allow the wholesale fleecing of the American public to continue unabated. In Wall Street and banking there is still honor among thieves. The Fed knew what was going on at Lehman and let it continue. That is how Mr. Bernanke purgered himself before Congress. Merrill Lynch had already warned the SEC and Fed as to what was actually going on at Lehman. Lehman committed fraud and its officers have thus far gotten away with it. Where is the SEC with civil charges and where is our Justice Department? They both only make selective prosecutions, most of which are based upon politics or the connections of the players. The only time they go after insiders is when they are forced too, like in the recent fine against Berkshire Hathaway, Warren Buffett’s firm, for accounting fraud of $200 million. The fine was $100 million, so as you can see crime pays. What is worse is that other firms are doing the same thing. This is all part of the mantra that no major financial firm should be allowed to fail. They are too big to fail.

The big bad secret is that if banks and other financial companies reported their true financial positions they’d be out of business – insolvent. The Fed and the SEC are certainly well aware of these problems, but the game goes on. The fraud is intentional and conscience. They know there are two sets of books, that MBS on their books are virtually worthless, they just bought $1.1 trillion worth of the toxic waste and they are well aware that the shadow inventory on their books is at best worth $0.30 on the dollar. In fact, everyone within the beltway knows it, just like seven years ago they all knew Fannie Mae and Freddie Mac were broke. As you can see, there is no law; it is only what these people want it to be. Faithfully all regulators and our elected representatives look the other way. They allow corruption to flourish. One thing that can be guaranteed is that if you report any of these frauds nothing is liable to happen. Today that is the American way – crime pays.

As we have said before the exposure of the problems in Greece, those of all the PIIGS and in the US, California, Arizona, Pennsylvania, New Jersey and New York, open a whole new phase of the debt crisis. The world is in a sovereign debt crisis. In Europe and in the US there are talks regarding a reduction in leverage in currency, which will only cause a liquidity crisis. A rise in interest rates will only compound the problem.

In addition we believe mortgage debt, both commercial and residential, will be sucked into the vortex adding to the woes. This is a replay of what occurred in the 1930s in the debt markets. Do not forget the bond market is 10 times bigger than the stock market and if something has to be sacrificed it will be the stocks, not the bonds. The replay will find stocks falling first, followed by bonds. The bond problem is already very visible; 19 nations have had their credit ratings cut and the US and UK and others will soon follow. That is why we continue to say that the only safe haven is in gold and silver related assets. As we have said previously the only way to handle the problem is for nations to meet, have a multilateral official devaluation and debt default settlement. That will be followed by a deflationary depression, which will be accompanied by another worldwide war.

The debt load, particularly in advanced economies, is overextended and unsustainable at more than 400% of GDP in the US alone. That is 25% higher than US debt was in the 1930s. Those who do believe debt will be settled and currencies devalued, also know that recovery from that debt will take 20 or more years.

At the center of this greed and corruption are derivatives and securitization, which are simply a Ponzi scheme form of finance. These instruments were central to bringing down AIG and GM. The lenders, the large banks, brokerage houses, investment banks and insurance companies wrote these financial products, most of which are and were uncollateralized. As a result of this unethical disaster the American taxpayer was put firmly on the hook to repay this debt and to bail out the lenders. In addition, as you have been recently informed, these products were responsible in part for Greece’s current problems. What Goldman Sachs did was transform government debt into derivatives, which were insured by CDSs. In time the euro zone will break up as a result of this and other factors. If England were to withdraw from the EU that could as well break up the European Union. Speculators have been purchasing Greek CDSs, anticipating debt default and as a result the euro has plunged. All of this is the result of turning world markets into a casino.

As you can see the problems are not going away and they won’t disappear until the system is purged. More than $3 trillion has been poured into GM, AIG, Fannie Mae, Freddie Mac and Wall Street banks and brokerage houses by American taxpayers via the Fed and the Treasury. As a result the biggest violators have become even bigger, which was the intention from the beginning. As an example, JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Goldman Sachs hold almost 40% of all bank deposits. The credit crisis and the debt crisis are far from over. The desk chairs have just been rearranged. Not only will seven million more people lose their homes this year creating a 3-year home inventory for sale, but also lenders will get hit with commercial real estate they cannot possibly finance. We see another minimum of four more years of defaults both in the US and Europe. Taxpayers cannot save the system indefinitely, especially when the players that caused all this are back leveraging and speculating again.

We are facing a commercial debt crisis that no one expects. We are going to see hundreds of US banks fail this year, which the FDIC does not have the funds to cover. This year or next we are facing a sovereign debt crisis in the US, Europe and elsewhere. We are looking at tariffs on goods and services next year. All derivatives should be outlawed except on transparent exchanges and present positions should all be unwound. Europe is already moving ahead on this matter and hopefully an international conclusion can be reached. In addition Glass Steagall should be reinstated and the Fed’s job be turned back to the Treasury Department.

Bearing out what we discussed earlier there is little talk of all G-7 members soon reaching more than 100% of GDP in public debt. As a result every one of these 7 countries have serious problems. In addition they are still expanding M3 or M4. Power and cash consumption shifts more and more toward governments. Banks have cut back lending by some 20%. They are holding government paper probably at the behest of government. The foreign treasury buying could very well be the Fed funding the purchases. Then the carry trade and hedge funds do their part as well. This could be a position of diminishing returns if interest rates rise in the real market, which we believe they will. Some 30 major nations have the same problem the US has and that is funding their own debt, as well as America’s. Again, we have long believed that Treasury funding from the UK, Caymans and other sources was merely a front for Fed purchase of Treasuries. That in part is what the swap agreements are all about. This 40% increase in US monetary base normally would cause inflation, perhaps even hyperinflation, but the affect of 22-1/8% unemployment, low wages and a strong deflationary undertow has held inflation at an official 2-1/2% to 3%, or a real 7-1/2%. We see money and credit continuing to grow at 16% although the Fed has been drawing liquidity from the system. Normally we’d say that the US would emulate Japan’s 20 years of deflationary depression, but this time it is different. Japan wasn’t carrying the debt load the US is today. Japan began off a lower center. The luxury of 20 years of sideways movement that Japan experienced is not available to the US, because of their massive sovereign debt that grows by the minute.

As we pointed out previously foreign holdings of dollars by other central banks has fallen from 64.5% of assets to 60.5%. this has been caused by internal funding needs and flight from the dollar. This fall in dollar reserves sooner of later will force the Fed to raise rates to draw in more dollars to fund US debt. These exercises will also crowd out other corporate borrowers, again putting upward pressure on interest rates. Somewhere along the chain problems will arise and it will snap. We believe that event will be when multilateral official devaluation and debt defaults take place and those events are not far away.

We are at a juncture where governments cannot really help like they could previously and in order to survive they will have to take care of themselves. For the moment they have neutralized a bankrupt banking system by creating enough liquidity to offset deflation. As demands grow the need for liquidity grows just to keep the insolvent system afloat. This approach is funding sovereign debt, but it is not allowing loans to small- and medium- sized businesses and individuals. The system’s worst days lie ahead. Take advantage of the interlude, it will be short lived.

The Mortgage Bankers Association reports its index, which shows purchase and refinance applications, saw the latest week in March loan application volume decrease 4.2%. The Purchase Index component rose 2.7%. The Refinance Index fell 7.1% week-on-week. The Purchase Index fell 15% year-on-year. These numbers were called an improvement by the mainline controlled media, if you can believe that.

JPMorgan Chase is cutting a deal with your government for a $1.4 billion tax refund. This is a benefit for taking over Washington Mutual. JPM paid only $1.9 billion for Wamu. If the tax break is allowed they have 73.6% of the purchase price back. JPM wants to score $10’s of billions for a $500 million investment. The public gets screwed again and the criminals on Wall Street win.

Orders for long-lasting goods rose in February for a third month, while inventories and backlogs climbed by the most in more than a year, indicating the manufacturing rebound will keep propelling the U.S. recovery.

The 0.5 percent increase in bookings for durable goods was in line with the median forecast of economists surveyed by Bloomberg News and followed a 3.9 percent gain the prior month, the Commerce Department said today in Washington. Excluding transportation equipment, orders advanced 0.9 percent, more than anticipated.

The U.S. lost 2.4 million jobs to China between 2001 and 2008, according to a new report issued Tuesday.

Texas and California were the hardest hit but every state has experienced job losses because of increased trade from China, according to the report from the left-leaning Economic Policy Institute.

The report blamed high job losses in computers, electronic equipment and parts industries, which are concentrated in those two states.

North Carolina was also hit hard according to the report. That state has seen textile, furniture and other small manufacturing industries shrink as companies faced competition from lower-priced Chinese goods.

While the report said low labor costs in China are a big reason for the trade deficit, it also blamed China’s currency manipulation.

China pegs its currency to the U.S. dollar so that it rises and falls with fluxuations in the dollar’s value. Critics say this means China’s currency is undervalued, and that it lowers the price of Chinese exports while making U.S. exports to China more expensive.

Sens. Charles Schumer (D-N.Y.) and Lindsey Graham (R-S.C.) have introduced legislation to make it easier for companies to petition the government for tariffs on Chinese products because of currency manipulation.

The two senators are expected to hold a press call Tuesday afternoon on the report.

The report said China has purchased U.S. Treasury bills and other securities to keep the Chinese currency pegged to the U.S. dollar.

China has $2.4 trillion in currency reserves, much of which is thought to be in U.S. dollars.

China’s purchases of U.S. Treasury bills has helped the U.S. finance its debt without raising interest rates, but this has also made Chinese exports to the U.S. less expensive.

Sales of new homes in the U.S. fell slightly in February - the fourth straight monthly drop - to yet another record low. New-home sales slipped 2.2% to an annual pace of 308,000, seasonally adjusted, which is the lowest rate since the government began tracking the data in 1963, according to the Commerce Department. Economists surveyed by MarketWatch forecast annualized sales of 318,000. Sales for January were revised to a seasonally adjusted annual rate of 315,000, up from 309,000 as previously reported. The median price of a new home sold shot up 6.1% to $220,500 in February from January's revised level of $207,900.

Washington homeowners today sued Bank of America (NYSE: BAC) claiming the lending giant is intentionally withholding government funds intended to save homeowners from foreclosure.

The case, filed in U.S. District Court, claims that Bank of America systematically slows or thwarts Washington homeowners’ access to Troubled Asset Relief Program (TARP) funds by ignoring homeowners’ requests to make reasonable mortgage adjustments or other alternative solutions that would prevent homes from being foreclosed.

“We intend to show that Bank of America is acting contrary to the intent and spirit of the TARP program, and is doing so out of financial self interest,” said Steve Berman, managing partner of Hagens Berman Sobol Shapiro.

Bank of America accepted $25 billion in government bailout money financed by taxpayer dollars earmarked to help struggling homeowners avoid foreclosure. One in eight mortgages in the United State is currently in foreclosure or default.

Bank of America, like other TARP-funded financial institutions, is obligated to offer alternatives to foreclosure and permanently reduce mortgage payments for eligible borrowers struck by financial hardship but, according to the lawsuit, hasn’t lived up to its obligation.

According to the U.S. Treasury Department, Bank of America services more than 1 million mortgages that qualify for financial relief, but have granted only 12,761 of them permanent modification.

The big news in the Existing Home Sales report is inventories jumped at the fastest rate in 20 years – to 8.6 months from 7.8 months. As we warned, just like in the mid-00s, government stimulus schemes cannibalized future sales for expediency.

The median home price declined 1.8% y/y; but the surge in inventory and the termination of the first-time home buyers’ tax credit augurs for a steeper decline in prices.

A new national telephone poll conducted by Opinion Dynamics Corp. for Fox News concludes:

Most American voters believe it’s possible the nation’s economy could collapse, and majorities don’t think elected officials in Washington have ideas for fixing it.

The latest Fox News poll finds that 79 percent of voters think it’s possible the economy could collapse, including large majorities of Democrats (72 percent), Republicans (84 percent) and independents (80 percent).

Unfortunately, it already has, although Bernanke, Summers and Geithner are still trying to hide that fact.

One more time, from the top...

Consumer spending accounts for the lion's share of the economic activity. The economy cannot recover until trust is restored. Trust won't be restored until the fraud actually stops, the criminals are prosecuted, and the fox is fired from his role as chicken coop guard.

Bill Gross: As a November IMF staff position note aptly pointed out, high fiscal deficits and higher outstanding debt lead to higher real interest rates and ultimately higher inflation, both trends which are bond market unfriendly. In the U.S. in addition to the 10% of GDP deficits and a growing stock of outstanding debt, an investor must be concerned with future unfunded entitlement commitments, which portfolio managers almost always neglect, viewing them as so far off in the future that they don’t matter. Yet should it concern an investor in 30-year Treasuries that the Congressional Budget Office estimates that the present value of unfunded future social insurance expenditures (Social Security and Medicare primarily) was $46 trillion as of 2009, a sum four times its current outstanding debt? Of course it should, and that may be a primary reason why 30-year bonds yield 4.6% whereas 2-year debt with the same guarantee yields less than 1%.

The trend promises to get worse, not better. The imminent passage of health care reform represents a continuing litany of entitlement legislation that will add, not subtract, to future deficits and unfunded liabilities

WSJ editorial: U.S. cities, states and the feds have issued more than $2.5 trillion of new debt since 2008, with another nearly $2 trillion scheduled in 2010.

States and cities face $1 trillion to $2 trillion of additional unfunded liabilities in opulent state employee pension and health-care plans. Even as states can't maintain their roads and bridges, politicians have diverted hundreds of billions in tax money to finance salary and pension increases for government workers. Build American Bonds subsidize states and cities so they can avoid a day of reckoning over those benefits.

NYC Mayor Says If Albany Slices City Aid, As Many As 19,000 Will Be Laid Off; 3,100 Less Cops, 1,000 Less Firefighters; Layoffs May Be Worst In Decades; Ball In State Government's Court.

4-Day School Weeks Might Be Coming In Illinois - State House Has Passed Bill Allowing ScDistricts To Set Up Shorter Weeks; Mayor Daley Has Doubts.

Initial jobless claims fell to the lowest level in six weeks as the rebound in the U.S. economy encourages companies to make fewer cuts in payrolls.

First-time jobless applications declined 14,000 in the week ended March 20 to 442,000, lower than anticipated, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance decreased, and those getting extended benefits also fell.

Nouriel Roubini, the New York University economist who predicted the financial crisis, said U.S. lawmakers may spark a trade war by labeling China as a “currency manipulator.”

“With unemployment at 10 percent and more than 130 Congress people saying we should brand China as a manipulator, the probability the U.S. is going to do that in its mid-April report is significant, I would say at least 50 percent,” Roubini told Bloomberg Television today in Cernobbio, Italy. “That could lead to a trade war, absolutely.”

China pegged the yuan to the dollar in July 2008 to help its exporters weather a global economic slump and after the currency appreciated 21 percent since 2005. International pressure on China to allow the currency to rise has intensified since Premier Wen Jiabao said on March 14 that the yuan isn’t undervalued.

“Under a floating exchange rate the yuan will appreciate, prima facie evidence that the yuan is undervalued,” Roubini said. “It is in the interest of China to let the currency appreciate.”

Chinese central bank advisor Fan Gang said China “may resume a managed float of its exchange rate” if the global economy stabilizes and uncertainty around the economic outlook diminishes. Yuan forwards strengthened against the dollar after his comments were published today in the Melbourne-based Age newspaper.

As Prime Minister Benjamin Netanyahu was in Washington this week absorbing the full wrath of the Obama administration, the Pentagon and Israel's defense establishment were in the process of sealing a large arms deal.

According to the deal, Israel will purchase three new Hercules C-130J airplanes. The deal for the three aircrafts, designed by Lockheed Martin, is worth roughly a quarter billion dollars. Each aircraft costs $70 million.

The aircrafts were manufactured specifically for Israeli needs, and include a large number of systems produced by Israel's defense industry.

The deal will be covered by American foreign assistance funds. The Pentagon will issue a formal announcement on the matter on Thursday evening.

America and Israel have still not reached an agreement regarding the purchase of the Lockheed F-35 war plane. It is still not clear when that deal, which is estimated to be worth more than $3 billion, will finally be sealed and carried out.

If that deal is signed in the near future, Israel will likely receive its first F-35 in 2014.

http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Credit_Crisis_Outrage_Far_From_Over

Morgan Stanley: The Rally Is Near It's End:

30 MARCH 2010 By TPC

When it comes to equity analysts Teun Draaisma is a must-read. The European equity analyst famously called for investors to sell stocks in June 2007 when the markets were flashing a “full house sell” signal. He then flipped bullish in November of 2008 as the markets were pricing in a much more severe situation than Draaisma saw unfolding. He’s one of the few investors who actually got the downturn and the upturn correct and was able to connect the dots between cause and effect. In his latest strategy note Draaisma is saying the rally has gotten ahead of itself and that we’re due to for a correction as good news becomes bad news. In addition to being bearish about 2010 (see here), Draaisma says the better than expected growth in the near-term is putting more pressure on the Fed to raise rates and will lead to tightening measures sooner than most investors suspect:

“The rally since 5-February is nearing its end, we believe. Our thesis is that good growth will lead to tightening measures and struggling equity markets this year, just like in 1994 and 2004. The recent rally was larger than we expected, and in our eyes was due to:

1) there have been no positive payrolls or Fed language change yet (we even saw some loosening rather than tightening
measures last week, with the Greek bailout, the ECB keeping its wide collateral pool for longer and the Obama plan for troubled
mortgage borrowers).

2) sentiment had turned quite cautious in early February. Nevertheless, we do think the market peak associated with the start of tightening is near, and expect 2010 to show a volatile whipsaw pattern in equities. We expect good payrolls (April 2) and a Fed language change (April 30), some leading indicators are rolling over from multi-decade peaks (ECRI leading indicator for the US, OECD leading indicator for the world), and some sentiment surveys have turned more bullish.”

Draaisma believes the market will decline 11% in the next 3-6 months:

“The 3-6 month outlook: tactical caution. The last 12 months have been characterised by record stimulus and rising economic leading indicators. We think the next 6 months will be characterised by some stimulus withdrawal (as a reaction to good growth in Asia and US), and softening leading indicators. We reduced our equity exposure two months ago. We recommend selling into strength, and we think MSCI Europe will reach 1030 at some point later in 2010, down 11% from here.”

On a longer time horizon Draaisma says the markets remain entangled in a bear market and that investors should not be fooled by the cyclical bull within a secular bear:

“The multi-year outlook: the secular bear market that started in 2000 is not yet complete (pages 11-13). We believe the secular bear market is incomplete for a variety of reasons, including that banking crises and bailouts tend to precede debt crises; that the amount of debt has not been reduced yet (it only changed hands to the government); that equity valuations never reached end of bear market levels; and our historical analysis that equities tend to struggle for longer in the aftermath of secular bear markets. When the next earnings recession hits, perhaps in 2012, we expect equities to complete the bear market that started in 2000.”

Draaisma’s outlook isn’t exactly consensus, but then again, it never really has been. And that makes his research a breath of fresh air on Wall Street.

http://pragcap.com/morgan-stanley-the-rally-is-near-its-end

The Big Winner is Big Pharma:

The Big Winner is Big Pharma:

Big Pharma Wins Big With Health Care Reform Bill
ALAN FRAM | 03/29/10 06:31 AM |

WASHINGTON — Chalk one up for the pharmaceutical lobby. The U.S. drug industry fended off price curbs and other hefty restrictions in President Barack Obama's health care law even as it prepares for plenty of new business when an estimated 32 million uninsured Americans gain health coverage.

To be sure, the law also levies taxes and imposes other costs on pharmaceutical companies, leaving its final impact on the industry's bottom line uncertain. A recent analysis by Goldman Sachs, the Wall Street firm, suggests the overhaul could mean "a manageable hit" of tens of billions of dollars over the coming decade while bolstering the value of drug-company stocks. Others expect profits, not losses, of the same magnitude.

Either way, pharmaceutical lobbyists won new federal policies they coveted and set a trajectory for long-term industry growth. Privately, several of them say their biggest triumph was heading off Democrats led by Rep. Henry Waxman, D-Calif., who wanted even more money from their industry to finance the health care system's expansion.

"Pharma came out of this better than anyone else," said Ramsey Baghdadi, a Washington health policy analyst who projects a $30 billion, 10-year net gain for the industry. "I don't see how they could have done much better."

Costly brand-name biotech drugs won 12 years of protection against cheaper generic competitors, a boon for products that comprise 15 percent of pharmaceutical sales. The industry will have to provide 50 percent discounts beginning next year to Medicare beneficiaries in the "doughnut hole" gap in pharmaceutical coverage, but those price cuts plus gradually rising federal subsidies will mean more elderly people will purchase more drugs.

Lobbyists beat back proposals to allow importation of low-cost medicines and to have Medicare negotiate drug prices with companies. They also defeated efforts to require more industry rebates for the 9 million beneficiaries of both Medicare and Medicaid, and to bar brand-name drugmakers' payments to generic companies to delay the marketing of competitor products.

The impressive list of wins is testament to a carefully planned and well-financed lobbying strategy, led by Pharmaceutical Research and Manufacturers of America, the industry's deep-pocketed trade group. And testament to Billy Tauzin's "genius" for understanding where Pharma's interests really lay.

The trade group has been led by Billy Tauzin, whose $4.5 million in earnings in 2008, the most recent figure available, underscore the high stakes for the industry.

The former Louisiana congressman will quit his post in June – a decision he abruptly announced in February when it seemed the health bill would die. Some industry officials said at the time that Tauzin was forced out, which the trade group denied.

As Obama's health care drive began last year, drugmakers agreed with Senate Finance Committee Chairman Max Baucus, D-Mont., and White House officials to support the effort. In exchange, the companies volunteered $80 billion in 10-year savings for the health care changes, and backed it up with an expensive TV ad campaign pushing Obama's proposal.

It is unclear precisely how much drug manufacturers ended up contributing, in part because much of the savings – like discounts to seniors – come off prices the companies themselves set. Their biggest expenses over the decade are estimated to include over $20 billion for an expanded rebate for medicines used by Medicaid, $28 billion for a new fee on drug firms and about $30 billion for closing the "doughnut hole."

In a March 21 newsletter, the financial services firm Morgan Stanley estimated a $95 billion, 10-year price tag, offset by tens of billions the companies would gain from extra customers and other provisions. Industry critics say the cost will be lower because of firms' control of prices, and will be more than outweighed by added sales.

Yet even the worst-case scenario – a net cost of tens of billions – would be small for a U.S. drug industry that IMS Health, a medical data firm, calculates earns more than $300 billion a year.

"Let's put it this way: They can afford it," said Tim Chiang, a pharmaceutical analyst in Stamford, Conn.

Drugmakers gained an eleventh-hour win when lawmakers decided against expanding drug discounts to some hospitals serving low-income patients, a proposal some feared could cost tens of billions. The overhaul law that Obama signed Tuesday would have broadened those discounts to inpatients, but the companion bill revising the earlier measure largely pulled that back.

Senate Finance Committee Chairman Baucus, said in an interview last week that as a trade-off for rolling back that expansion, the drug industry agreed to provide an additional $10 billion over a decade to help close the gap in Medicare coverage.

As for what Democrats gained from their ally, the industry and coalitions it joined spent about $67 million on supportive TV ads since the beginning of 2009, according to Evan Tracey, president of Kantar CMAG, which tracks political ads. That made it one of the biggest players in an airwaves battle that saw all sides spend $220 million.

Pharmaceutical interests spent $188 million lobbying last year, more than all but a handful of industry sectors, according to the nonpartisan Center for Responsive Politics. They employed an army of 1,105 lobbyists.

And after years of funneling most of its campaign contributions to Republicans, the industry has favored Democrats with 56 percent of the $5 million it has handed candidates so far this year. The biggest recipient, by far, of the industry's 2008 election cycle contributions of $13.8 million was Obama, who received $1.2 million for his presidential campaign.

"They're certainly going to get a very high return on that investment," Waxman said in a recent interview.

http://www.huffingtonpost.com/2010/03/29/big-pharma-wins-big-with_n_516977.html

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

10 Ways the New Healthcare Bill May Affect You:

10 Ways the New Healthcare Bill May Affect You:

by Katie Adams
Friday, March 26, 2010

The Patient Protection and Affordable Healthcare Act, more commonly referred to as the "healthcare bill", has taken over a year to craft and has been a lightning rod for political debate because it effectively reshapes major facets of the country's healthcare industry.

Here are 10 things you need to know about how the new law may affect you:

1. Your Kids are Covered

Starting this year, if you have an adult child who cannot get health insurance from his or her employer and is to some degree dependent on you financially, your child can stay on your insurance policy until he or she is 26 years old. Currently, many insurance companies do not allow adult children to remain on their parents' plan once they reach 19 or leave school.

2. You Can't be Dropped

Starting this fall, your health insurance company will no longer be allowed to "drop" you (cancel your policy) if you get sick. In 2009, "rescission" was revealed to be a relatively common cost-cutting practice by several insurance companies. The practice proved to be common enough to spur several lawsuits; for example, in 2008 and 2009, California's largest insurers were made to pay out more than $19 million in fines for dropping policyholders who fell ill.

3. You Can't be Denied Insurance

Starting this year your child (or children) cannot be denied coverage simply because they have a pre-existing health condition. Health insurance companies will also be barred from denying adults applying for coverage if they have a pre-existing condition, but not until 2014.

4. You Can Spend What You Need to

Prior to the new law, health insurance companies set a maximum limit on the monetary amount of benefits that a policyholder could receive. This meant that those who developed expensive or long-lasting medical conditions could run out of coverage. Starting this year, companies will be barred from instituting caps on coverage.

5. You Don't Have to Wait

If you currently have pre-existing conditions that have prevented you from being able to qualify for health insurance for at least six months you will have coverage options before 2014. Starting this fall, you will be able to purchase insurance through a state-run "high-risk pool", which will cap your personal out-of-pocket expenses for healthcare. You will not be required to pay more than $5,950 of your own money for medical expenses; families will not have to pay any more than $11,900.

6. You Must be Insured

Under the new law starting in 2014, you will have to purchase health insurance or risk being fined. If your employer does not offer health insurance as a benefit or if you do not earn enough money to purchase a plan, you may get assistance from the government. The fines for not purchasing insurance will be levied according to a sliding scale based on income. Starting in 2014, the lowest fine would be $95 or 1% of a person's income (whichever is greater) and then increase to a high of $695 or 2.5% of an individual's taxable income by 2016. There will be a maximum cap on fines.

7. You'll Have More Options

Starting in 2014 (when you will be required by law to have health insurance), states will operate new insurance marketplaces - called "exchanges" - that will provide you with more options for buying an individual policy if you can't get, or afford, insurance from your workplace and you earn too much income to qualify for Medicaid. In addition, millions of low- and middle-income families (earning up to $88,200 annually) will be able to qualify for financial assistance from the federal government to purchase insurance through their state exchange.

8. Flexible Spending Accounts Will Become Less Flexible

Three years from now, flexible spending accounts (FSAs) will have lower contribution limits - meaning you won't be able to have as much money deducted from your paycheck pre-tax and deposited into an FSA for medical expenses as is currently allowed. The new maximum amount allowed will be $2,500. In addition, fewer expenses will qualify for FSA spending. For example, you will no longer be able to use your FSA to help defray the cost of over-the-counter drugs.

9. If You Earn More, You'll Pay More

Starting in 2018, if your combined family income exceeds $250,000 you are going to be taking less money home each pay period. That's because you will have more money deducted from your paycheck to go toward increased Medicare payroll taxes. In addition to higher payroll taxes you will also have to pay 3.8% tax on any unearned income, which is currently tax-exempt.

10. Medicare May Cover More or Less of Your Expenses

Starting this year, if Medicare is your primary form of health insurance you will no longer have to pay for preventive care such as an annual physical, screenings for treatable conditions or routine laboratory work. In addition, you will get a $250 check from the federal government to help pay for prescription drugs currently not covered as a result of the Medicare Part D "doughnut hole".

However, if you are a high-income individual or couple (making more than $85,000 individually or $170,000 jointly), your prescription drug subsidy will be reduced. In addition, if you are one of the more than 10 million people currently enrolled in a Medicare Advantage plan you may be facing higher premiums because your insurance company's subsidy from the federal government is going to be dramatically reduced.

Conclusion

Over the next few months you will most likely receive information in the mail from your health insurance company about how the newly signed law will affect your coverage. Read the correspondence carefully and don't hesitate to ask questions about your policy; there may be new, more affordable options for you down the road.

http://finance.yahoo.com/insurance/article/109178/10-ways-the-new-healthcare-bill-may-affect-you;_ylt=ApLsemDTGNy6arF9BQ4m5fFO7sMF;_ylu=X3oDMTE5MnY0dnRtBHBvcwM1BHNlYwN3ZWVrZW5kRWRpdGlvbgRzbGsDd2hhdHRoZWhlYWx0?mod=insurance-health

A Simple Explanation of How The Use of Derivatives Created The Great Recession:

A Simple Explanation of How The Use of Derivatives Created The Great Recession:

In comments to a post by fellow Angry Bear Robert Waldman, reader Cantab writes:

Nobody here has come up with a believable story on how derivatives hurt the economy or were the cause of the recession. All we really get is a claim that they happened together and the further assertion that derivates [sic] caused the recession rather than the more likely story that derivatives were the victim of the recession.

I'm pretty sure Cantab is wrong but I don't have the time to find the various posts that described the issue. But I can summarize:

1. Derivatives are about magnifying bets. A $2 bet on a derivative can be the same thing as a $100 bet on the asset that underlies the security. Thus, if the asset doubles in value, instead of taking home an extra $2 on your bet, you take home an extra $100. But if the price of the asset falls in half, instead of losing $2 on your bet, you lose $100.

2. On Wall Street, everyone leveraged up. After all, the worst that can happen when you gamble with monster leverage is that you go bankrupt. But if you win your bets, you make humongous profits.

3. Inevitably, when everyone is leveraged up, at least some of those who are leveraged must sooner or later make some bad bets. But the losses associated with these leveraged up bad bets was much bigger than in the past. Instead of losing $2 on their $2 bets as would have happened in the past, they lost $100. In the past, the losers' assets would simply have been liquidated, and those assets would have been enough to cover a substantial part of the losses. With derivatives, liquidation covers an insignificant piece of what is owed.

4. Result: massive, and I mean massive, losses to the firm's creditors. Perhaps big enough to drive their creditors out of business too. And those creditors have creditors too...

5. As a result of 4, a firm could win all its bets and still be driven out of business, simply by virtue of being stupid enough to bet against another firm who realized point 2. (And every firm on Wall Street, apparently, realized point 2.) In fact, a firm could be driven out of business despite winning its bets if one of its counterparties was stupid enough to bet against another firm who realized point 2. Being twice or three times removed from a loser might not be enough to keep a firm from being pulled under.

6. Derivatives are also opaque. There's no way of knowing who took out which bets with who until someone declares bankruptcy.

7. Very quickly, it became apparent that any of the firms on Wall Street might already be on the inevitable path toward bankruptcy, but there was no way at all to tell the difference between those that were on that path and those that weren't, or even if there were any firms that weren't headed toward bankruptcy.

8. All deals ceased. The real world, that had gotten used to unlimited amounts of cheap money sloshing around, abruptly and without warning found itself cut off from its fix. Expansions plans, hiring, etc. were put on hold. And companies that were teetering on the edge that earlier would have found some savior on Wall Street found themselves having to shut down or scale back instead.

I have to admit, its taken me a while to come to terms to how big the derivative market was. I had no idea, no inkling of its size back in March of 2008 when I began asking what was different about the current recession. As a result, though I noted the possibility of a "major downturn", I was surprised by exactly how big the downturn would really be. What scares me is that that I'm not seeing anything, anything at all that prevents or even makes the 8 steps I described above any less likely to occur. The bail-outs were madness. Those who knowingly go out of their way to play with dynamite should be allowed to blow themselves up, and the job of government should be to prevent the rest of us from having to deal with the consequences.

Which brings me back to something else I wrote in 2008. We need a public option... in the financial system. Let the public bank at the Fed the way the banks bank at the Fed. If given a choice between keeping my money at B of A or the Fed, I know which I'll pick.

http://www.angrybearblog.com/2010/03/simple-explanation-of-how-use-of.html

Fox News Poll: 79% Of Americans Say U.S. Economy Could Collapse:

Fox News Poll: 79% Say U.S. Economy Could Collapse:

Updated March 23, 2010
By Dana Blanton - FOXNews.com

Most American voters believe it’s possible the nation’s economy could collapse, and majorities don’t think elected officials in Washington have ideas for fixing it.

The latest Fox News poll finds that 79 percent of voters think it’s possible the economy could collapse, including large majorities of Democrats (72 percent), Republicans (84 percent) and independents (80 percent).

Just 18 percent think the economy is "so big and strong it could never collapse."

Moreover, 78 percent of voters believe the federal government is "larger and more costly" than it has ever been before, and by nearly three-to-one more voters think the national debt (65 percent) is a greater potential threat to the country’s future than terrorism (23 percent).

Who has a plan for dealing with the economy?

Overall, 35 percent of voters think the Obama administration has a clear plan for fixing the economy, down from 42 percent last summer (July 21-22, 2009).

At the same time the number saying the White House doesn’t have a plan for the economy has increased from 53 percent in July to 62 percent in the new poll. That includes almost all Republicans (88 percent), two-thirds of independents (67 percent), as well as a third of Democrats (33 percent).

Even fewer people think Democrats in Congress (24 percent) and Republicans in Congress (16 percent) have clear plans to fix the economy.

There is a large gap in party support, as Democrats (46 percent) are significantly more likely than Republicans (25 percent) to think their party has a strategy for the economy.

The national telephone poll was conducted for Fox News by Opinion Dynamics Corp. among 900 registered voters from March 16 to March 17. For the total sample, the poll has a margin of sampling error of plus or minus 3 percentage points.

"These results reveal a deep anxiety about the fragility of our economy, as voters face continued uncertainty about jobs and an expanding commitment to public sector spending," said Ernest Paicopolos, a principal of Opinion Dynamics.

Three in 10 American voters (30 percent) say they are comfortable with the size and role of the federal government right now, while 65 percent say the government has become too big and "is restricting American freedoms."

Sizable majorities of Republicans (84 percent) and independents (74 percent) think the government is too big, while just over half of Democrats (51 percent) are okay with the size of government.

http://www.foxnews.com/politics/2010/03/23/fox-news-poll-say-economy-collapse/?test=latestnews

Health Reform: A Year-by-Year Rundown of What Happens and When:

Health Reform: A Year-by-Year Rundown of What Happens and When:

Jill Lawrence
Posted: 03/23/10

The historic health overhaul that President Obama signed on Tuesday (in advance of further "fixes" in a reconciliation bill) will make sweeping changes in our health system. They include new consumer protections, expanded coverage of the uninsured, penalties for people and businesses who don't buy insurance, attempts to control rising costs, and Medicare savings and new taxes to pay for it all. Here is a year-by-year look at what's in store, assuming final Senate passage later this week of a package of amendments to the landmark bill both chambers already have passed:

2010

Adults who can't get coverage because of a pre-existing medical condition can join a high-risk insurance pool (this is an interim step pending the launch in 2014 of competitive health insurance marketplaces and premium subsidies).

Insurance companies will have to issue policies for children with pre-existing conditions. They will not be allowed to revoke existing policies if people get sick. Lifetime limits on coverage will be banned in new coverage and annual limits will be restricted. Preventive services will be fully covered, with no co-pays or deductibles. Coverage will be available for dependent children until they turn 26.

People in the Medicare prescription drug program will receive a $250 rebate as the first step in closing the coverage gap, or "doughnut hole," that requires them to pay full freight after they have spent $2,700 on drugs. The gap would be phased out entirely by 2020.

Certain small businesses will start getting tax credits to offset up to 35 percent of the cost of insuring their employees. That will rise to 50 percent in 2014.

Plans must have "an effective appeals process" for decisions and claims. States will get grants to set up programs that help consumers with complaints or questions about health insurance. The federal government will set up a website to help people in different states figure out their insurance options.

The first tax increase kicks in: A 10 percent tax on indoor tanning services.

2011

Medicare changes will include free annual wellness visits; little to no cost-sharing for preventive care, like immunizations and cancer screenings; bonuses to primary care doctors and general surgeons; a new Center for Medicare and Medicaid Innovation to test ways to provide better, more efficient care; and, the start of a phase-out of overpayments to private Medicare Advantage insurers. People in the prescription "doughnut hole" will receive discounts on prescriptions.

2012

There will be new money for primary care services and new incentives to encourage doctors to join together in "accountable care organizations." The government will track re-admission rates at hospitals and impose penalty fees on hospitals with the highest rates.

2013

This is when higher taxes will begin for households with income above $250,000 and individuals above $200,000. The Medicare payroll tax on earnings above those amounts will rise from 1.45 percent to 2.35 percent. Unearned income above those amounts, such as dividends, will now be subject to a 3.8 percent tax.

In addition, maximum contributions to pre-tax Flexible Savings Account contributions will be limited to $2,500 a year (down from the current $3,050 for individuals).

There will be a new 2.9 percent excise tax on medical devices.

Medicare will sponsor a national pilot program on "payment bundling" -- paying hospitals, doctors and other providers based on patient outcome, not services provided.

2014

More consumer protections begin. Insurance companies will not be able to deny policies to anyone based on their health status or to refuse coverage of a treatment based on pre-existing health conditions. Their ability to charge higher rates to people based on age, geography, family size or tobacco use will be limited. Annual limits on coverage will be abolished.

Each state will open a health insurance exchange, or marketplace, for individuals and small businesses without coverage. People will be able to comparison shop for standardized health packages. There will be a multistate private plan available nationwide, supervised by the U.S. Office of Personnel Management. Tax credits will be available to make insurance and care affordable for people who make too much to qualify for Medicaid, but have incomes below 400 percent of poverty.

Most people will be required to buy insurance coverage or pay penalties that start at $95 in 2014 and rise to $695 or 2.5 percent of income in 2016. Employers with 50 or more workers who do not offer coverage will have to pay annual fees.

Medicaid eligibility will increase to 133 percent of the poverty level ($14,404 for individuals) for everyone under 65 (when they qualify for Medicare).

2015

A new Independent Payment Advisory Board will be formed to come up with ways to lower Medicare costs and promote better care. The recommendations will go to Congress and private insurers.

2018

This is when the most controversial new tax begins, a 40 percent excise tax on insurance companies and plan administrators for any family plan that costs more than $27,500. The tax applies to the cost above that threshold. There are higher thresholds for retirees over 55 and plans that cover workers in high-risk jobs.

2019

The new system will have reduced the number of uninsured people by 32 million, according to the nonpartisan Congressional Budget Office. That will leave an estimated 23 million uninsured, one-third of them illegal immigrants. Coverage of legal residents too young for Medicare (under age 65) will be 94 percent, up from 83 percent now.

http://www.politicsdaily.com/2010/03/23/health-reform-a-year-by-year-rundown-of-what-happens-and-when/?icid=main|htmlws-main-n|dl1|link7|http://www.politicsdaily.com/2010/03/23/health-reform-a-year-by-year-rundown-of-what-happens-and-when/

New Health Care Bill Pros and Cons:

New Health Care Bill Pros and Cons:

by Tracy Edenloft
March 22, 2010

Obama Health Care Plan Explained

With the recent passage of the proposed Health Care Reform Bill in the House of Representatives, a lot of Americans are now looking for the explanation of the pros and cons of this new health care bill. They are asking themselves: “What does the health care bill mean to me?”

How can you explain the Obama Health Care Plan? Well, we all know that most Democrats agreed and voted “yes” to this new health care bill on the ground that it will help a lot of Americans with their health insurance costs.

In contrast, Republicans voted for a “no” simply because they claim that this Health Care Reform Bill is so expensive that it may hinder the growth of the US economy given that the total expenses of the US Government is pegged at $940 billion.

So given the contrasting ideas of both Democrats and Republicans in this Health Care Reform Bill, what are the pros and cons of this new health care bill to the millions of ordinary Americans? Let’s enumerate some of them.

Health Care Bill PROS:

1. Discrimination of health insurance companies will be eliminated. No more pre-existing conditions clauses in health insurance contracts.

2. Given the fact that millions of Americans will be insured by this new health care bill, the US Government can negotiate among health insurance firms to lower the premiums of their health insurance. This would mean less health insurance costs for a lot of Americans.

3. Tax credit will be given to those Americans who still cannot afford to avail health insurance to help them to have one.

4. Stiff competition among health insurance firms will possibly result to much lower insurance costs and more quality health insurance products and services.

5. Aside from the elimination of pre-existing conditions stated above, the coverage amount or sum insured will also be waived by health insurers.

Health Care Bill CONS:

1. Given the huge amount of expenses pegged at $940 billion in a spread of about 10 years, it might slow down the growth of heavily burdened US economy.

2. Insurance Availment Mandate. You have no choice but to get a health insurance. Otherwise, you will be subjected to a 2% tax increase which will be used to subsidize the insurance costs of other Americans. Healthy people who take care of themselves will have to pay for the burden of those who smoke, are obese, etc.

3. There will be a tax increase on people with very high income. If you are making more than half a million per annum, you will have about a 1% tax increase.

4. The US Government will have more control in the health insurance industry causing patients’ confidentiality to be more likely compromised since centralized health information will likely be maintained by the government.

5. Chances of bribery may possibly increase as health care equipment, drugs, and services may end up being rationed by the government.

http://www.worldcorrespondents.com/new-health-care-bill-pros-and-cons-obama-health-care-plan-explained/881955

VIDEO - 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 Russell 2000 and the TZA 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 Most Important Chart of the Century...

THE Most Important Chart of the CENTURY!:

by Nate
Published on 03-20-2010 02:24 PM

The latest U.S. Treasury Z1 Flow of Funds report was released on March 11, 2010, bringing the data current through the end of 2009. What follows is the most important chart of your lifetime. It relegates almost all modern economists and economic theory to the dustbin of history. Any economic theory, formula, or relationship that does not consider this non-linear relationship of DEBT and phase transition is destined to fail.

It explains the "jobless" recoveries of the past and how each recent economic cycle produces higher money figures, yet lower employment. It explains why we are seeing debt driven events that circle the globe. It explains the psychological uneasiness that underpins this point in history, the elephant in the room that nobody sees or can describe.



This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to the nation's output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment...

This is just a teaser. The full article has many graphs that your really should see. Read the rest of the article here:

http://www.swarmusa.com/vb4/content.php/282-THE-Most-Important-Chart-of-the-CENTURY

ObamaCare: The Slaughter House Three:

ObamaCare: The Slaughter House Three:

by Dr. David Janda
Mar 20th 2010 at 9:29 am

In Kurt Vonnegut’s 1969 novel, Slaughterhouse Five, the main character, Billy Pilgrim, is an American POW who hides in a meat cellar as Dresden is being fire bombed.

In 2010, the Slaughterhouse Three, Obama, Pelosi and Reid, shove every American in a meat cellar as they fire bomb America with their rationing-based health care plan. ObamaCare is a plan designed to strip Freedom and Liberty from every American.

Obama, Pelosi and Reid now have decided to avoid an up/down House vote on the Senate Bill and to enforce the “Slaughter House Rule”. In other words, when you do not have the votes, just change the rules, pass the changes to the bill and pretend you passed the “real” bill. Previously, the public was outraged that members of Congress did not read the bill prior to voting. This is even worse. With this latest charade, Obama, Pelosi and Reid are forcing House members to pass the bill without voting on the bill. …So much for a democratic republic and The Constitution.

The latest version of ObamaCare is troubling on many fronts. ObamaCare takes control of every American’s health care life. This plan would not improve the current system, and is fatally flawed because it:

* Rations and denies access to healthcare. Denying access to healthcare is the most inhumane and unethical means of cutting costs;

* Costs $1 TRILLION ($100 Billion more than The Senate Bill);

* Creates over 110 Federal Agencies, commissions and boards;

* Creates The Health Insurance Rate Authority….a direct violation of States’ Rights;

* Establishes a “ Comprehensive Database” on Americans;

* Establishes Individual and Employer Mandates (Mr. Obama’s own Chair of Council of Economic Advisors has stated that this alone would cost 5.5 Million jobs….more unemployment;

* Institutes $748 Billion in new taxes;

* Cuts Medicare by $500 Billion, over a period when 30% MORE Americans will be added to Medicare rolls, (You do the math;

* Imposes $136 Billion in tax hikes on working families making LESS THAN $250,000 (Americans for Tax Reform Analysis);

* Ends Medicare Advantage Program for Seniors and forces them to a more expensive plan with less benefits;

* Applies Medicare Tax to unearned income;

* Increases Medicare Payroll Tax from 2.95 to 3.8%; and

* Increases unfunded mandates on every State;

* Increases Capital Gains tax rate as of 2014 to 23.8%;

* Creates 16,000 jobs for the IRS to implement penalties for those not buying insurance.

The Slaughterhouse Three, Obama, Pelosi and Reid, have authored the legislation that will make every American a POW, strip them of their Freedoms and Liberty and shove them in a meat cellar for cold storage. So how is that Hope and Change working for you now?

http://biggovernment.com/djanda/2010/03/20/obamacare-the-slaughter-house-three/#more-92930

Fundamentals Don't Matter Until They Do:

Fundamentals Don't Matter Until They Do:

Comstock Partners, Inc.
March 18, 2010

The market rallied when the FOMC said it would keep the Fed Funds rate at current levels for an extended period just as it rallied when it became likely that the EU would paper over (at least temporarily) the Greek financial crisis. The market apparently continues to have great faith that the various central banks throughout the globe will continue to bailout and guarantee that they would never let any entity fail and would assure continued economic growth indefinitely. In other words, what economists and strategists used to refer to as the "Greenspan put" has now essentially become the "Bernanke put". We at Comstock have no such conviction that piles of additional debt issued or assumed by governments can cure the problems that were brought on by too much debt in the first place.

In this connection the delusions and hopes associated with the current rally bear a lot of resemblance to the unwillingness of investors to recognize reality at the market tops of March 2000 and October 2007. In the late 1990s and into early 2000 the market gave enormous valuations to tech stocks with no earnings and, in many instances, little or no sales as thousands of people with no market experience spent their time day trading their way to huge profits that evaporated, along with their initial capital, in the ensuing market carnage.

When the game ended with big losses and a potentially deep recession, the Fed stepped in by keeping interest rates at 1% for an extended period and encouraging, along with others, a massive boom in housing. Despite warnings by reputable individuals such as Paul Volcker and by institutions such as the IMF and the World Bank, the stock market soared.

Even when the dangers of the housing boom started to become evident in the media and the industry began to weaken, the stock market surge continued unimpeded. In August 2006 an article in Barron's described in detail the number of new mortgages and home-equity loans that were interest-only, no-money-down and adjustable-rate. Other articles explained so-called "liar loans" whereby purchasers were able to get mortgages with no documentation of income or assets. In the same period various mortgage lenders went public with their dire problems. These companies included, among others, H&R Block, Impac Mortgag, Countrywide, Accredited Home Lenders and Washington Mutual. During the following period revelations came out almost daily how mortgages were packaged and sold, sliced and diced and distributed all over the globe. In June 2007 two big Bear Stearns hedge funds came close to collapse and still Wall Street didn't get it. The stock market kept rising into October as investors belittled the importance of subprime mortgages, and, in any event, assumed the Fed would take care of everything.

Now, once again the markets are assuming that central banks around the world will save the economy despite the severe problems that are known to all and despite the fact that the S&P 500 has already experienced two declines of more than 50% within the same decade. The economic recovery remains extremely weak, plagued by consumer deleveraging, a weak labor market, tight credit, a hidden inventory of homes to be foreclosed, significant amounts of toxic debt still on the books of major financial institutions and the dire financial condition of state and local governments.. In addition there are the continuing problems of sovereign debt, the unsustainable boom in China and the threat of "beggar thy neighbor" policies as illustrated by the current trade and currency tensions between the U.S. and China.

Meanwhile, as in 2000 and 2007, the stock market is once again flying upward, feeding on its own momentum and the faith that governments will never let bad things happen. The general feeling seems to be that fundamentals don't really matter any more as long as the market is rising. As past massive declines have proven, however, fundamentals don't matter until they do.

http://www.comstockfunds.com/default.aspx?MenuItemID=29&&AspxAutoDetectCookieSupport=1

My Latest Video: $JOEZ - Support & Resistance at the Middle Bollinger Band"

This is the second lesson in a four part series that explains how important the middle Bollinger Band is in relation to my trading strategy...

It also explains the relationship between the middle BBand, the zero line of the CCI, and the fifty line of Stochastics...

It also ties the Buy & Sell Signals the MACD gives into the equation...

JPMorgan, UBS and Deutsche Bank Charged with Derivatives Fraud:

JPMorgan, UBS and Deutsche Bank Charged with Derivatives Fraud:

Posted by Jesse at 9:20 AM
17 March 2010

More like international crime families sending out enticing emails trying to lure and trick the unsuspecting than serious financial institutions. This is banking?

Notice that these were operating out of their London units, similar to the AIG derivative scandal that helped to worsen the US financial crisis. The FSA is apparently working hard now to enforce its rules and bring these banks to heel. Contrast that with the SEC in the States which seems reluctant to do anything regarding enforcement, and even when a judge puts them to the task, are able to administer only the mildest of financial chastisement to be passed on to the shareholders.

There is speculation that the US government cannot reform these banks because it is deeply involved in financial transactions of a questionable nature with them itself, ranging from enormous individual campaign contributions to market manipulation in various financial instruments in support of government policy which is otherwise failing badly. The opacity of markets and government bodies like the ESF makes this difficult to assess, but the outrageous size of positions amongst some of the banks, together with the occasional slip in the redacted transcripts is the smoke that indicates more heat beneath the surface than we might imagine.

The US Treasury Secretary himself is recenly implicated in an outrageous accounting fraud perpetrated by Lehman Brothers with the apparent complicit silence of the NY Fed which he was leading at the time.

And yet the Congress seems to be able to do little or nothing, it is so controlled by the monied interests. The Senate has the temerity to propose giving Consumer Protection to this very Fed as it is revealed to be complicit in bank fraud of epic proportions, and a track record of fighting and delaying consumer reforms and sensible regulation of OTC derivatives for years. The Republicans are unashamed of their venality, and the Democrats are seemingly leaderless.

The banks must be restrained, the financial system reformed, and balance restored to the economy before there can be any sustained recovery.

****

Deutsche Bank, JPMorgan, UBS Are Charged With Derivatives Fraud

By Elisa Martinuzzi and Sonia Sirletti

March 17 (Bloomberg) -- Deutsche Bank AG, JPMorgan Chase & Co., UBS AG and Hypo Real Estate Holding AG’s Depfa Bank Plc unit were charged with fraud linked to the sale of derivatives to the City of Milan.

Judge Simone Luerti scheduled the trial of the four firms, 11 bankers and two former city officials for May 6, Prosecutor Alfredo Robledo said after a hearing in Milan today. The banks allegedly misled the city on swaps that adjusted interest payments on 1.7 billion euros ($2.3 billion) of borrowings.

Prosecutors across Italy are probing banks as local and national government agencies face potential losses of 2.5 billion euros on derivatives, lawyers say. The Milan probe may also affect cases as far away as the U.S., where securities firms have faced charges for price-fixing and bid-rigging in the sale of derivatives to municipalities, though not for fraud, according to former regulator Christopher “Kit” Taylor.

“This case could have repercussions over here if the trial showed deliberate intent,” said Taylor, a former executive director of the Municipal Securities Rulemaking Board, the national regulator of the municipal-bond market. “What happened in Europe was the continuation of a pattern in the U.S.”

UBS, JPMorgan and Deutsche Bank officials didn’t have an immediate comment. Officials at Depfa couldn’t immediately be reached.

Robledo alleges the London units of the four banks misled Milan on the economic advantage of a financing package that included the swaps and earned 101 million euros in hidden fees.

He also claims the banks violated U.K. securities rules by failing to inform Milan in writing that for the swap deal the city was a counterparty to the lenders rather than a customer. Banks abiding by the rules of the Financial Services Authority are required to shield customers from conflicts of interest and provide them with clear and fair information that isn’t misleading.

The prosecutor, who seized assets from the banks equal to their share of the alleged profit, is claiming JPMorgan charged about 45 million euros in commissions that were hidden from the municipality, while Deutsche Bank made about 25 million euros, Depfa Bank earned 21 million euros and UBS made 10 million euros, court documents show.... http://tiny.cc/oe7oo


Posted by Jesse at 9:20 AM

http://jessescrossroadscafe.blogspot.com/2010/03/jpmorgan-ubs-and-deutsche-bank-charged.html

Huge (53%) Tax Increase On SAVERS!:

Huge (53%) Tax Increase On SAVERS by Karl Denninger

Posted at 11:52
Wednesday, March 17. 2010

If you were wondering where the hidden taxes are in "Health Reform", guess what - President Obama has just given you something to sit on.

"The forced march to pass ObamaCare continues, and all that matters now is raw politics. But opponents should go down swinging, and that means exposing such policy debacles as President Obama's 11th-hour decision to apply the 2.9% Medicare payroll tax to "unearned income."

That's what savings and investment income are called in Washington, and this destructive tax wasn't in either the House or Senate bills, though it may now become law with almost no scrutiny." ( ObamaCare's Worst Tax Hike http://tiny.cc/mD5V0 )

This is unbelievably destructive to capital formation.

For the person who is "short-term trading" (e.g. daytrading, etc) this is a relatively small tax, an increase of about 7% in the tax (2.9% applied to the 39.6% maximum rate on "ordinary income", which short-term capital gains are.)

But for the person who is INVESTING for the long haul, that is, who is holding stocks for more than one year, this takes the marginal rate from 15% to 17.9%, an increase of almost 20% in the tax owed.

This, of course, comes on the back of President Obama's fraudulently engineered "rally", which was created through Congressional intervention to permit - surprise surprise - legalized accounting fraud through "mark to model."

So you got your stock market rally, and now President Obama and The Democrats are going to cram a 20% tax increase down your throat if you profited from it - and at this point, being 2010, there's not a thing you can do about it.

It gets better. Since ordinary investors can only write off $3,000 in capital losses, when you lose you don't get a tax credit. Oh yeah, you get to carry forward the loss to future years, but you paid the tax on the gains already - this is a putative future credit back.

Oh, and let's not forget that there was already a huge tax increase coming this year - the long term capital gains rate goes to 20% at the end of this year anyway as the Bush tax cuts expire.

So in fact the rate goes from 15% to 22.9%, a fifty-three percent increase in the tax rate.

And oh, if your AGI goes over $200,000 by even a dollar you are subject to this tax from the first dollar of your investment income.

A fifty-three percent increase in taxes on long-term (that is, capital-forming, long-term investment) capital gains - exactly the sort of investment activity you want to form businesses and invest for the long haul in America's future, not to mention generating jobs by forming those enterprises.

That's slammed the door on any interest I might have in forming a new business as I did in the 1990s - ever - and I suspect I'm not alone.

When this goes into effect my capital, other than that which I can shelter from taxation, is no longer going to be put at risk in the markets. I'd rather live in a nice little cottage on the beach and simply expend what I have rather than contributing to capital formation in any way, shape or form under a punitive system like this.

Why?

Because if Congress demonstrates that it will put 53% on the capital gains rate once I've already committed my capital (thereby destroying my return) I will not take the risk of them doing it again and making the rate even more punitive.

http://market-ticker.org/archives/2090-Huge-53%25-Tax-Increase-On-SAVERS.html

US Making Preparations for a Pre-Emptive Strike on Iran:

US Making Preparations for a Pre-Emptive Strike on Iran
(or Some Other Eastern Destination)

Posted by Jesse at 3:18 PM
15 March 2010

Although one would doubt that the US would 'go it alone,' one has to question whether or not they would act in support of a pre-emptive strike by Israel on Iranian nuclear facilities.

Although this news piece assumes Iran is the target, other easterly destinations come to mind in the vicinity of Afghanistan.



The implications of such a strike on the world financial and commodity markets is obvious, and bears careful watching.

I would doubt the US would circumvent a discussion at the United Nations. Even George W had to at least pay lip service to international support prior to his attack on Iraq.

Final destination Iran?

SundayHeraldScotland
By Rob Edwards
14 Mar 2010

Hundreds of powerful US “bunker-buster” bombs are being shipped from California to the British island of Diego Garcia in the Indian Ocean in preparation for a possible attack on Iran.

The Sunday Herald can reveal that the US government signed a contract in January to transport 10 ammunition containers to the island. According to a cargo manifest from the US navy, this included 387 “Blu” bombs used for blasting hardened or underground structures.

Experts say that they are being put in place for an assault on Iran’s controversial nuclear facilities. There has long been speculation that the US military is preparing for such an attack, should diplomacy fail to persuade Iran not to make nuclear weapons.

Although Diego Garcia is part of the British Indian Ocean Territory, it is used by the US as a military base under an agreement made in 1971. The agreement led to 2,000 native islanders being forcibly evicted to the Seychelles and Mauritius.

The Sunday Herald reported in 2007 that stealth bomber hangers on the island were being equipped to take bunker-buster bombs.

Although the story was not confirmed at the time, the new evidence suggests that it was accurate.

Contract details for the shipment to Diego Garcia were posted on an international tenders’ website by the US navy.

A shipping company based in Florida, Superior Maritime Services, will be paid $699,500 to carry many thousands of military items from Concord, California, to Diego Garcia.

Crucially, the cargo includes 195 smart, guided, Blu-110 bombs and 192 massive 2000lb Blu-117 bombs.

“They are gearing up totally for the destruction of Iran,” said Dan Plesch, director of the Centre for International Studies and Diplomacy at the University of London, co-author of a recent study on US preparations for an attack on Iran. “US bombers are ready today to destroy 10,000 targets in Iran in a few hours,” he added.

The preparations were being made by the US military, but it would be up to President Obama to make the final decision. He may decide that it would be better for the US to act instead of Israel, Plesch argued.

“The US is not publicising the scale of these preparations to deter Iran, tending to make confrontation more likely”, he added. “The US ... is using its forces as part of an overall strategy of shaping Iran’s actions.”

According to Ian Davis, director of the new independent thinktank, Nato Watch, the shipment to Diego Garcia is a major concern. “We would urge the US to clarify its intentions for these weapons, and the Foreign Office to clarify its attitude to the use of Diego Garcia for an attack on Iran,” he said.

For Alan Mackinnon, chair of Scottish CND, the revelation was “extremely worrying”. He stated: “It is clear that the US government continues to beat the drums of war over Iran, most recently in the statements of Secretary of State, Hillary Clinton.

“It is depressingly similar to the rhetoric we heard prior to the war in Iraq in 2003.”

The British Ministry of Defence has said in the past that the US government would need permission to use Diego Garcia for offensive action. It has already been used for strikes against Iraq during the 1991 and 2003 Gulf wars.

About 50 British military staff are stationed on the island, with more than 3,200 US personnel. Part of the Chagos Archipelago, it lies about 1,000 miles from the southern coasts of India and Sri Lanka, well placed for missions to Iran.

The US Department of Defence did not respond to a request for a comment.
http://www.heraldscotland.com/news/world-news/final-destination-iran-1.1013151

Posted by Jesse at 3:18 PM
http://jessescrossroadscafe.blogspot.com/2010/03/us-preparing-for-pre-emptive-strike-on.html

Senator Dodd to Unveil a Broad Financial Overhaul Bill:

Dodd to Unveil a Broad Financial Overhaul Bill:

The most sweeping overhaul of financial regulations since the Depression.

By Sewell Chan
March 14, 2010

WASHINGTON — The chairman of the Senate Banking Committee will unveil on Monday a proposal to revamp the nation’s financial regulations that would empower shareholders to have advisory votes on executive pay and to nominate directors for the boards of public companies through company proxy ballots, several people briefed on the draft legislation said Saturday night.

The shareholder provisions, which have been vigorously opposed by many corporations and by Republicans, will be part of a bill that would amount to the most sweeping overhaul of financial regulations since the Depression. But with no Republican support yet for the proposal, Democratic lawmakers and the White House have been gearing up for a potentially bitter partisan fight.

The impending proposal by the chairman, Christopher J. Dodd of Connecticut, hews in many ways to a proposal advanced last summer by the White House, the people briefed on the legislation said.

Mr. Dodd said Thursday that Democrats would proceed on their own after months of stop-and-start negotiations with Republicans over a bipartisan compromise yielded little progress.

As Senate aides worked through the weekend on drafting the legislation, key elements became clear, according to the people briefed on the negotiations, who spoke on the condition of anonymity because the situation was still fluid.

The bill would create a consumer financial protection agency under the umbrella of the Federal Reserve, but with a director appointed by the president and the ability to write rules governing mortgages, credit cards, payday loans and a wide range of other financial products.

It would have some ability, within certain parameters, to ensure that the rules are followed; how the rules would be enforced has been a major source of partisan division. As in a House version of regulatory overhaul adopted in December, the bill would, in some circumstances, restrict states from writing their own, stronger consumer protection rules.

The Federal Reserve would see its bank supervision powers significantly diminished. It would continue to oversee bank holding companies with $50 billion or more in assets, and would be entrusted to regulate systemically important nonbank financial institutions. Mr. Dodd had considered setting the threshold at $100 billion, which would have been even worse for the Fed.

Smaller bank holding companies, if they have a federal charter, would be overseen by a new regulator formed out of the Office of the Comptroller of the Currency, which already oversees national banks. The Federal Deposit Insurance Corporation, which already oversees state-chartered banks that are not members of the Fed system, would gain oversight over those that are.

The bill would also create a council to detect systemic risks to the financial system, and trigger, if necessary, a process to seize and dismantle a large financial firm on the verge of failure, so as to limit the possibility of a broader meltdown and the need for a government bailout.

The risk council would be headed by the treasury secretary and including representatives of the Fed, the new consumer agency, the F.D.I.C., the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Housing Finance Agency — along with an official appointed to monitor the insurance industry, which is largely regulated by the states.

The bill would also impose, for the first time, comprehensive regulation of the sprawling market in over-the-counter derivatives. Standardized swaps and derivatives would have to be traded on exchanges or clearinghouses.

But companies that do not primarily deal in derivatives and are not major participants in the swaps market — that is, companies that use derivatives to hedge commercial risk — would be exempt from the new requirements. The size and extent of that exemption has been a key focus of behind-the-scenes negotiations over the past several months.

Several people briefed on the negotiations over the weekend said it appeared that Mr. Dodd was focused on advancing a proposal that could advance through the Banking Committee with united support among its Democratic members.

He appeared to be taking steps to satisfy concerns by several Democrats on the committee, including Jack Reed of Rhode Island, who has advocated for an autonomous consumer agency, and Charles E. Schumer of New York Democrat, who has advocated for shareholder rights.

Mr. Dodd hopes to have a committee vote on the bill before Congress recesses on March 26. There are 13 Democrats and 10 Republicans on the committee, and the Republicans have urged Mr. Dodd not to move ahead on Monday but instead to continue further talks.

http://www.nytimes.com/2010/03/14/business/14bank.html?partner=rss&emc=rss

Record Advance in S&P 500 Futures Shows Confidence in Economy:

Record Advance in S&P 500 Futures Shows Confidence in Economy:

By Lynn Thomasson and Rita Nazareth

March 13 (Bloomberg) -- The longest-ever gain in futures linked to the Standard & Poor’s 500 Index shows growing investor confidence in the U.S. economy.

“It’s a bullish indication,” said Stephen Lieber, chief investment officer of Alpine Woods Capital Investors LLC, which manages more than $7 billion in Purchase, New York. “There’s greater confidence in the equity market. Earnings have been relatively positive.”

Contracts to buy the S&P 500 in June 2010 have climbed for 11 days since Feb. 25, rallying 4.5 percent to 1,146.6. While futures on the U.S. equity benchmark usually track the index, they don’t move in lockstep as the S&P 500 retreated less than 0.1 percent yesterday following a drop in consumer confidence. Caterpillar Inc. helped lead the Dow Jones Industrial Average higher on signs of growing demand for machinery in China.

The S&P 500, which is near its highest level in 17 months, has risen 9 of the past 11 days. The index increased 1 percent this week as economic reports showed a rebound in consumer demand after retail sales unexpectedly rose last month and wholesale inventories fell in January.

Forecasts for the biggest two-year rebound in profits since 1994 also fueled the advance. Analysts’ estimates show income for S&P 500 companies may climb 26 percent this year and 20 percent in the next. More than 72 percent of firms in the equity index beat earnings projections for the fourth quarter, the second-highest percentage on record, according to data compiled by Bloomberg.

“People are looking to buy stocks,” said Mark Bronzo, an Irvington, New York-based money manager at Security Global Investors, which oversees $21 billion. “Risk appetite seems to be growing as people become more comfortable with the sustainability of the economic recovery.”

The 11-day gain in S&P 500 futures exceeds a 10-day advance in January 1987. During that period, the stock benchmark jumped 9.6 percent and rose 5.4 percent the following month. The futures contracts were created in 1982 and trade on CME Group Inc.’s Chicago Mercantile Exchange.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJrxozH8Bx6s&pos=3

Here is the daily and the weekly charts for the $SPX:

Daily:



Weekly:

Senate Finance Bill Includes Agency to Track Financial Risk:

Senate Finance Bill Includes Agency to Track Financial Risk:

By Edward Wyatt and Sewell Chan
March 10, 2010

WASHINGTON — Senate Banking Committee members from both parties said on Wednesday that they had agreed to include in their regulatory overhaul bill a new Office of Research and Analysis that would provide early warnings of possible systemic collapses.

The proposed agency, which has sometimes been referred to as the National Institute of Finance, is intended to give federal regulators daily updates on the stability of individual firms as well as that of their trading partners, including hedge funds.

By standardizing financial instruments and reporting mechanisms, the agency would give regulators a broader view of the health of participants in the financial markets and the potential for problems to spread. The idea’s supporters say that kind of information was lacking in recent years as the housing bubble burst and troubles spread from firm to firm.

“One of the problems we observed in the recent crisis is that nobody knew who had what,” said Senator Jack Reed, a Rhode Island Democrat who last month introduced a stand-alone bill to establish a National Institute of Finance. “The result was a cascading effect of uncertainty and doubt.”

The new agency, which was also endorsed Wednesday by Senator Bob Corker, Republican of Tennessee, would have no policy responsibilities but would instead collect and analyze data, building models to assess relative risks and predict how one firm’s problems might affect others.

As proposed, the new agency would be housed in the Treasury Department with a director, appointed by the president and confirmed by the Senate, who would be an ex-officio member of a systemic risk council that would be created by the bill. The agency would draw its budget from assessments on the largest financial firms, according to people who are close to the negotiations but who were not authorized to speak publicly.

The agency would gather data from the largest firms and from a broad set of market participants, including all United States-based financial institutions, which would be required to report all their financial transactions, regardless of whether the counterparty was based here or abroad. The agency would take steps to safeguard proprietary trading information, while also shining a light onto the so-called shadow banking system of mortgage brokers, subprime lenders and unregulated hedge funds that contributed to the financial crisis.

The financial reform bill approved last year by the House would create a systemic risk council that would collect similar data without establishing an independent agency, a difference that will have to be resolved before a bill is sent to the president.

A group called the Committee to Establish the National Institute of Finance — made up of current and former financial executives, statisticians and economists, including six Nobel laureates in economics — has been lobbying for such an agency for much of the last year.

Allan I. Mendelowitz, a former director of the Federal Housing Finance Board who was a founder of the group, said in an interview that regulators were unable to assess expanding risk in the recent crisis in part because they relied on independent contractors, like the credit rating agencies, for data.

If a security was rated triple-A by the ratings agencies, for example, as were many mortgage-backed securities, regulators wrongly assumed that it posed little systemic risk, Mr. Mendelowitz said.

The agency would require a vast array of computing capacity, supporters said, and it would probably take a couple of years to establish data standards and build analytical models. But it could immediately begin to assess counterparty risk based on existing data.

Senate negotiators also tentatively agreed to establish a $50 billion fund to finance the dissolution of failing firms that could not be rescued through bankruptcy proceedings. The fund is intended to support companies that are forced to wind down their operations, without having to resort to taxpayer bailouts.

People who have been briefed on the negotiations said two proposals were under consideration. One would require financial companies to pay into a fund upfront and the other would have them buy interest-bearing shares in a trust that would allow the firms to keep the assets on their balance sheet.

Also on Wednesday, five Senate Democrats, including two members of the Senate Banking Committee, Jeff Merkley of Oregon and Sherrod Brown of Ohio, introduced a bill that would ban deposit-taking banks from owning or investing in hedge funds or private equity funds and from making market bets for the company’s own benefit.

President Obama put forward the idea in January and called it the Volcker Rule, in recognition of its champion, Paul A. Volcker, the former Federal Reserve chairman.

The bill has been endorsed by John S. Reed, a former Citigroup chairman; the economist Joseph E. Stiglitz; and Robert B. Reich, a former labor secretary, among others. But it faces significant resistance in Congress and is unlikely to be part of the revised bill that is expected to be introduced this month by Senator Christopher J. Dodd, chairman of the Banking Committee.

http://www.nytimes.com/2010/03/11/business/11regulate.html?partner=rss&emc=rss