Wharton: If Spain Goes Down, The ENTIRE Global Economy Is In Trouble:

http://www.businessinsider.com/wharton-if-spain-goes-down-the-entire-global-economy-is-in-trouble-2010-3

Vincent Fernando, CFA
Mar. 18, 2010, 6:36 AM

Wharton is warning markets to keep a very close eye on Spain right now. That's because while a Greece or Portugal financial meltdown might be manageable, a Spanish one could have massive negative repercussions for both Europe and the global economy.
This is due to the massive size of both Spain's economy and debt:

If Spain fails to execute a credible plan to cut its budget deficit, the worries over sovereign solvency will spread quickly beyond the small, peripheral countries currently making the most headlines, experts warn.

A Spanish default could herald the breakup of the euro and a rise in retaliatory protectionism around the world.

According to an analysis by consultants at McKinsey, the sum of Spanish government, corporate and household debt relative to the size of the overall economy surpasses all developed countries except the U.K. and Japan. Correcting the imbalance has grave implications for the public purse.

For that reason, observers worry about Spain's ability to service its debts. Bailouts of Greece and Portugal, if necessary, would be "not inconsequential but manageable," according to Witold Henisz, a professor of management at Wharton. The EU-led rescues would probably knock tenths of percentage points off of European growth, he adds. It's a different story with Spain.

The need for a Spanish bailout could drop us into a second phase of the global financial crisis, one where the euro could end and the world could entrench into deadly trade-destroying protectionism:

Italy, for example -- facing default as they became unable to fund budget deficits. The viability of the euro currency would come into question, as the union's stronger members could eventually refuse to prop up weaker members and decide that their destiny would be better served by monetary independence.

Spanish officials' lashing out at indistinct foreign culprits is a precursor of what to expect, Henisz says. The risks of a "spiral into protectionist isolationism" would rise. "Political parties that espouse nationalism and xenophobia could get some serious purchase under these conditions."

Check out the video from Wharton below...

U.S. MBA Mortgage Applications Index Rose 13.6% Last Week:

http://www.businessweek.com/news/2010-04-21/u-s-mba-mortgage-applications-index-rose-13-6-last-week.html

By Shobhana Chandra
April 21, 2010, 7:16 AM EDT

April 21 (Bloomberg) -- Mortgage applications in the U.S. rose by the most in seven weeks as the looming end of the homebuyer tax credit helped spark the biggest rise in purchases since January.

The Mortgage Bankers Association’s index increased 13.6 percent in the week ended April 16. The Washington-based group’s gauge of purchases climbed 10.1 percent and a drop in mortgage rates boosted the refinancing measure by 15.8 percent, the first gain since the end of February.

The tax credit, which requires contracts to be signed by the end of the month, is bringing buyers back to the market. Reports this week on March sales of new and previously owned homes may add to evidence that housing has stabilized, even as 9.7 percent unemployment and mounting foreclosures limit gains.

“We expect the improvement in sales to continue through the spring, peaking in June when the tax credit expires for closed contracts,” Michelle Meyer, a senior economist at Barclays Capital Inc. in New York, said in a note to clients.

The average rate on a 30-year fixed loan dropped to 5.04 percent from 5.17 percent the prior week, the group said.

At the current 30-year rate, monthly payments for each $100,000 of a loan would be $539, up from $520 a year ago, when the rate was 4.72 percent.

The average rate on a 15-year fixed mortgage declined to 4.34 percent last week from 4.45 percent the previous week. The rate on a one-year adjustable mortgage decreased to 6.95 percent from 7.02 percent.

As borrowing costs dropped, the share of applicants seeking to refinance a loan rose to 60 percent last week from 58.9 percent.

Home Sales

An April 23 report from the Commerce Department may show purchases of new houses increased 5.5 percent, according to the survey median.

The figures show the extension of the credit for first-time buyers and its expansion to include some current owners is beginning to stoke demand. At the same time, the real estate market faces hurdles, including rising foreclosures.

Lenders repossessed or delivered a default or auction notice to 932,234 homes, or one out of every 138 households, during the first quarter, according to RealtyTrac Inc. That marked a 16 percent increase from a year earlier.

CYCC - Cyclacel's Innovative and Diverse Oncology Targeted Pipeline Highlighted in Six Presentations at AACR Annual Meeting:

http://finance.yahoo.com/news/Cyclacels-Innovative-and-pz-4211853147.html?x=0&.v=1

BERKELEY HEIGHTS, N.J., April 20, 2010 (GLOBE NEWSWIRE) -- Cyclacel Pharmaceuticals, Inc. (Nasdaq:CYCC - News) (Nasdaq:CYCCP - News), a biopharmaceutical company developing oral therapies that target the various phases of cell cycle control for the treatment of cancer and other serious disorders, today announced the presentation of preclinical results for several of its pipeline compounds during the American Association of Cancer Research (AACR) 101st Annual Meeting 2010 in Washington, DC.

"Among the six abstracts, we are pleased to have data presented for the first time with regard to CYC065, our second generation inhibitor of cyclin-dependent kinases (CDKs). CYC065 is an oral multikinase inhibitor with the same CDK targeted profile as our seliciclib clinical-stage drug. Data presented at AACR show that CYC065 has promising anti-tumor activity in models of breast cancer and hematological malignancies," said Spiro Rombotis, President and Chief Executive Officer of Cyclacel. "In addition, translational studies highlighted the unique mechanisms of action and new potential clinical applications for sapacitabine and seliciclib, both of which are currently in multiple Phase 2 clinical trials. We are also encouraged by preclinical data with our recently discovered, oral, small molecule, anti-mitotic inhibitors of polo-like kinase 1 (Plk1), suggesting that they are suitable for further development."

CYC065 and Second Generation CDK Inhibitors

Abstract No. 22: "Cyclin E amplification, a novel mechanism of resistance to trastuzumab in HER2 amplified breast cancer"

In an oral presentation at AACR, investigators from Vall d'Hebron University Hospital (Barcelona, Spain) and Memorial Sloan-Kettering Cancer Center (New York, NY) reported that HER2 positive breast cancer cell lines refractory to the anti-proliferative effects of the therapeutic antibody trastuzumab (Herceptin(R)) were killed by CYC065. The investigators found that resistant cell lines were addicted to and overexpressed cyclin E, a component of the CDK/cyclin target of CYC065. Cyclin E overexpression has been observed in patients positive for HER2, a protein that is the target of trastuzumab. The discovery that cyclin E amplification decreases sensitivity of breast cancer cells to trastuzumab provides a rationale for exploring the efficacy of CDK2/cyclin E inhibitors, such as CYC065 and seliciclib, in this patient population.

"We have determined that breast cancer cells resistant to therapeutic agents targeting HER2 are highly sensitive to CDK inhibition by CYC065," said Jose Baselga, M.D., Ph.D., chairman of the Medical Oncology Service and director of the Division of Medical Oncology, Hematology and Radiation Oncology at the Vall d'Hebron Institute of Oncology, and lead investigator of the study. "Amplification and overexpression of cyclin E is a mechanism by which breast cancer cells develop resistance to trastuzumab. Targeting such cells with siRNA against cyclin E reduces cell growth and restores sensitivity to trastuzumab. Engineered overexpression of cyclin E in parental breast cancer cells markedly reduces trastuzumab's effectiveness. In contrast, Cyclin E overexpressing, trastuzumab-resistant cells are more sensitive to pharmacological inhibition by CDK inhibitors, such as seliciclib or its more potent derivative, CYC065. CYC065 induces more apoptosis in cyclin E overexpressing than in parental breast cancer cells. CYC065 has promising in vivo activity in xenograft models of the resistant cells, which appears to be enhanced by the action of trastuzumab."

Approximately 15 to 20 percent of breast cancers have an amplification of the HER2/neu gene or overexpression of its protein product, which is associated with increased disease recurrence and worse prognosis. Therapeutic agents targeting HER2 have been shown to improve survival. However, resistance to these agents is a major barrier to the effective treatment of breast cancer.

Cyclacel has developed CYC065 and other novel derivatives of seliciclib in collaboration with the Cancer Research UK Centre for Cancer Therapeutics at The Institute of Cancer Research (ICR), London, UK. CYC065 and related derivatives inhibit the same CDK/cyclin complexes, retaining the specificity and mechanism of action of seliciclib, but with increased anti-proliferative potency and improved pharmaceutical properties. Investigational new drug (IND) enabling studies for CYC065 are underway.

In 2001, the Nobel Prize in Physiology and Medicine was awarded for the discovery of cyclins and CDKs, key regulators of the cell cycle. By selectively modulating cell cycle regulation in cancer cells, inhibition of CDK/cyclin complexes represents a promising strategy for cancer therapy. Seliciclib (CYC202, R-roscovitine), a novel, first-in-class, orally available CDK inhibitor, currently in Phase 2 clinical trials, selectively inhibits multiple CDK/cyclin targets, in particular CDK2/cyclin E, CDK2/cyclin A, CDK5, CDK7 and CDK9. Seliciclib also induces apoptosis in neutrophil granulocytes that mediate inflammation, indicating that CDK inhibitors may also hold promise in applications outside oncology, such as the treatment of chronic autoimmune and inflammatory diseases including arthritis or asthma.

Abstract No. 3886: "Therapeutic potential of CDK inhibitors in MLL leukemias"

Chromosomal rearrangements involving the human mixed-lineage leukemia (MLL) gene are associated with the development of de novo acute myeloid leukemia (AML) and acute lymphoblastic leukemia (ALL) as well as in therapy-related AML. In a study reported at AACR, Cyclacel investigators studied the effect of CYC065, a second generation CDK inhibitor, on AML cell lines with and without MLL rearrangements. MLL-rearranged cells required 24 to 72 hours exposure to cytarabine for maximal response. In contrast AML cells, with or without MLL rearrangements, were exquisitely sensitive to short CYC065 treatments (5 to 8 hours) which completely inhibited proliferation. Rapid induction of p53 and downregulation of Mcl-1, Meis1 and Hoxa1 followed by apoptosis were observed. The high sensitivity of AML cell lines with MLL rearrangements was also confirmed in vivo. A highly potent and durable effect was observed in an AML mouse xenograft model after oral administration of CYC065 resulting in 97% tumor growth inhibition. The data suggest that both AML and MLL-rearranged leukemias are very sensitive to CYC065 and justify further exploration of its therapeutic potential in these indications.

Abstract No. 4431: "A novel derivative of the CDK inhibitor roscovitine that induces apoptosis in CLL and overcomes stromal cell-mediated protection"

Chronic lymphocytic leukemia (CLL) is characterized by the accumulation of malignant, apoptosis-resistant B-cells. In a study reported at AACR, investigators led by William K. Plunkett, Jr., Ph.D., Professor and Chief, Section of Molecular and Cellular Oncology, Department of Experimental Therapeutics at The University of Texas M. D. Anderson Cancer Center (Houston, TX) studied the effect of CYC065 in CLL. Similarly to seliciclib, CYC065 induced apoptosis in CLL cell lines in vitro by reducing CDK9-dependent transcription resulting in a rapid loss of short lived mRNAs or anti-apoptotic proteins such as Mcl-1. Loss of Mcl-1 was associated with induction of cancer cell death by apoptosis. CYC065 demonstrated approximately 30 times greater potency than seliciclib, its parent compound. The data suggests that CYC065 is also a promising candidate for clinical development in CLL.

Sapacitabine:

Abstract No. 3502: "Understanding the pathways involved in the repair of CNDAC induced DNA damage"

CNDAC is the main active metabolite of sapacitabine, Cyclacel's orally available nucleoside analogue, currently in Phase 2 trials in hematological and solid cancer. Unlike other nucleoside analogues, CNDAC causes the formation of double-stranded (ds) DNA breaks that activate the dsDNA damage checkpoint and cause arrest in the G2/M phase of the cell cycle. CNDAC-induced dsDNA damage is repaired by the homologous recombination (HR) DNA repair pathway. The work described in the poster discusses different methods of targeting the HR pathway to enhance CNDAC's potency against cancer cells.

Breast cancer susceptibility proteins BRCA1 and BRCA2 are tumor suppressors that ensure the stability of the cell's DNA and prevent uncontrolled cell growth in normal cells. BRCA gene mutations are common in breast and ovarian cancer. The BRCA1 and 2 proteins are involved in the HR DNA repair pathway. Recently published clinical data have validated that BRCA mutations can sensitize tumors to DNA damaging agents such as PARP inhibitors or cisplatin.

Investigators from Cyclacel reported that inactivation of BRCA1 or 2 by siRNA leads to a significant increase in the cancer cell cytotoxicity of CNDAC. In an isogenic cell line pair differing only in BRCA2 status, the BRCA2 deficient cell line was 50 times more sensitive to CNDAC than the parental cancer cell line with normal BRCA2 function. Importantly there was no difference in the sensitivity of both cell lines to gemcitabine, demonstrating that sapacitabine and gemcitabine work by different mechanisms. In the BRCA2 deficient cell line, CNDAC was more potent than gemcitabine. This data indicates that evaluation of sapacitabine in patients with either triple negative breast cancer or ovarian cancer would be advisable as patients with either of these tumors have a high proportion of BRCA mutations.

Depletion of CHK1 kinase, a regulator of the G2/M damage induced checkpoint, was also shown to increase the sensitivity of cancer cells to CNDAC. This finding was supported by demonstrating that CNDAC is synergistic in combination with CHK1 inhibitors. The strongest synergy was observed between CNDAC and the CHK inhibitor PF477736, with the combination producing a very significant increase in cell death compared to either single agent alone. As a number of CHK inhibitors are now in Phase 1 clinical trials, this combination also represents an attractive opportunity for clinical evaluation.

Anti-mitotic Therapies:

Anti-mitotic drugs that target tubulin, such as vinca alkaloids and taxanes, are widely used for the treatment of cancer, but have limitations related to the role of tubulin in the cytoskeleton of normal cells. Cyclacel has discovered and is developing new compounds that inhibit targets with specific functions in mitosis, such as Aurora kinases and polo-like kinases (PLKs), which show promising anti-tumor activity in preclinical models. These targets are only expressed in dividing cells and specific drugs are designed to avoid damaging non-dividing cells, thereby enabling an improved therapeutic index compared to existing anti-mitotic drugs that target tubulin.

Abstract No. 633: "Tumor cell resistance mechanisms to aurora kinase inhibitors"

CYC116, an Aurora kinase inhibitor discovered and developed by Cyclacel, is currently in a Phase 1 clinical trial in patients with advanced solid tumors. While CYC116 has demonstrated significant anti-proliferative activity in preclinical studies, induction of acquired resistance to this Aurora kinase inhibitor has not been established.

In a study presented at AACR, researchers identified the molecular basis of acquired tumor resistance to CYC116 in vitro. The group led by Marian Hajduch, M.D., Ph.D., Associate Professor of Oncology and Head of Laboratory of Experimental Medicine, at Palacky University and University Hospital (Olomouc, Czech Republic) has developed resistant clones of colon carcinoma cell lines to study mechanisms of CYC116-induced resistance. Data were presented on characterization of the derived clones in relation to their resistance toward CYC116, cross resistance to other Aurora kinase inhibitors and chemotherapeutic agents, cell cycle profile, biomarker modulation, important drug transporters, and expression profiles of Aurora kinases. Data show that all CYC116 resistant clones became stably tetraploid and displayed high cross-resistance to other Aurora kinase inhibitors. No over expression of Aurora kinases or up regulation of P-glycoprotein (PgP) drug transporter was observed. Some drug resistant clones over-expressed multidrug resistance-associated protein 1 (MRP1). These studies help understand potential acquired resistance mechanisms and design combination treatment regimens to overcome such resistance.

Abstract No. 4435: "Discovery, biological characterization and oral antitumor activity of polo-like kinase 1 (Plk1) selective small molecule inhibitors"

Activity of the mitotic kinase Plk1 is strongly associated with cancer progression. Several studies have shown correlations between elevated Plk1 expression, histological grade and poor prognosis in several types of cancer. Plk1 may have a role in oncogenesis through its regulation of tumor suppressors such as p53 and BRCA2. The inhibition of Plk1 by small molecules or siRNA has been shown to interfere with several stages of mitosis. Therefore, targeting Plk1 offers an opportunity to treat cancer with a targeted anti-mitotic approach that will inhibit several important regulatory events in tumor cells.

Cyclacel employed high throughput screening, in silico screening and de novo ligand design approaches to discover multiple Plk1 inhibitor series. In a study presented at AACR Cyclacel scientists showed preclinical data for a set of potent and highly selective Plk1 inhibitors with broad anti-proliferative activity across a range of tumor cell lines, independent of tumor cell origin or oncogenic Ras or p53 tumor suppressor status. The poster illustrated use of intracellular biomarkers ensuring on-target activity during lead optimization to deliver preclinical candidate compounds that are highly active in xenograft models of human cancers. Significant anti-tumor efficacy was observed, including tumor regression and tumor free cures after repeated oral dosing. The data reported underline the suitability of these compounds for further development as orally available Plk1 inhibitors for the treatment of human cancers.

Further details of all presentations referenced in this press release can be accessed through the AACR website, www.aacr.org. In relevant presentations CYC065 is denoted as Compound 5.

About Cyclacel Pharmaceuticals, Inc.

Cyclacel is a biopharmaceutical company developing oral therapies that target the various phases of cell cycle control for the treatment of cancer and other serious disorders. Three product candidates are in clinical development: Sapacitabine (CYC682), a cell cycle modulating nucleoside analog, is in Phase 2 studies for the treatment of acute myeloid leukemia in the elderly, myelodysplastic syndromes and lung cancer. Seliciclib (CYC202 or R-roscovitine), a CDK (cyclin dependent kinase) inhibitor, is in Phase 2 studies for the treatment of lung cancer and nasopharyngeal cancer and in a Phase 1 trial in combination with sapacitabine. CYC116, an Aurora kinase and VEGFR2 inhibitor, is in a Phase 1 trial in patients with solid tumors. Cyclacel's ALIGN Pharmaceuticals subsidiary markets directly in the U.S. Xclair(R) Cream for radiation dermatitis, Numoisyn(R) Liquid and Numoisyn(R) Lozenges for xerostomia. Cyclacel's strategy is to build a diversified biopharmaceutical business focused in hematology and oncology based on a portfolio of commercial products and a development pipeline of novel drug candidates. Please visit www.cyclacel.com for additional information.

Forward-looking Statements

This news release contains certain forward-looking statements that involve risks and uncertainties that could cause actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. Such forward-looking statements include statements regarding, among other things, the efficacy, safety, and intended utilization of Cyclacel's product candidates, the conduct and results of future clinical trials, plans regarding regulatory filings, future research and clinical trials and plans regarding partnering activities. Factors that may cause actual results to differ materially include the risk that product candidates that appeared promising in early research and clinical trials do not demonstrate safety and/or efficacy in larger-scale or later clinical trials, the risk that Cyclacel will not obtain approval to market its products, the risks associated with reliance on outside financing to meet capital requirements, and the risks associated with reliance on collaborative partners for further clinical trials, development and commercialization of product candidates. You are urged to consider statements that include the words "may," "will," "would," "could," "should," "believes," "estimates," "projects," "potential," "expects," "plans," "anticipates," "intends," "continues," "forecast," "designed," "goal," or the negative of those words or other comparable words to be uncertain and forward-looking. For a further list and description of the risks and uncertainties the Company faces, please refer to our most recent Annual Report on Form 10-K and other periodic and current filings that have been filed with the Securities and Exchange Commission and are available at www.sec.gov. Such forward-looking statements are current only as of the date they are made, and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The Institute of Cancer Research (ICR)

The ICR is Europe's leading cancer research centre and has been ranked the UK's top academic research center. Working closely with its partner, The Royal Marsden NHS Foundation Trust, the two organisations together form the largest comprehensive cancer centre in Europe ensuring patients immediately benefit from new research. Over its 100-year history, the ICR's achievements include identifying the potential link between smoking and lung cancer which was subsequently confirmed, discovering that DNA damage is the basic cause of cancer and isolating more cancer-related genes than any other organisation in the world. Several important anti-cancer drugs used worldwide were synthesized at the ICR. ICR has discovered an average of two preclinical candidates each year over the past five years. For more information please visit www.icr.ac.uk.

Cancer Research UK

For further information about Cancer Research UK's work or to find out how to support the charity, please visit www.cancerresearchuk.org.uk.

(C) Copyright 2010 Cyclacel Pharmaceuticals, Inc. All Rights Reserved. The Cyclacel logo and Cyclacel(R) are trademarks of Cyclacel Pharmaceuticals, Inc. Numoisyn(R) and Xclair(R) are trademarks of Sinclair Pharma plc. Herceptin(R) is a trademark of Genentech, Inc.

On Goldman, Securities Fraud, And Skepticism:

http://market-ticker.org/archives/2214-On-Goldman,-Securities-Fraud,-And-Skepticism.html

By now of course you know that Goldman Sachs was charged by the SEC with civil securities fraud Friday - unless you live under a rock.

The weekend has brought forth several interesting points, all of which I believe our political (and bankster) class had better pay attention to. In no particular order:

The rest of the world is tired of this crap too. Britain and Germany, to name two, are now looking at going after Goldman. This will not end here by any stretch of the imagination.

Goldman may have violated more than one law. Isn't receipt of a Wells Notice a "material event" that requires disclosure via an 8-K filing? I'm sure they'll claim "no", but I wouldn't be so sure of that. Never mind their hasty response on Friday afternoon. We'll see how this plays out.

Goldman was not the only large bank involved in deceptive deals. We should really talk about Magnetar, shouldn't we, and the nine banks that enabled their piece of this (that would be Merrill, Citi, UBS and more.) They were all involved in a number of deals that smell suspiciously like the one the SEC went after Goldman over. Or shall we talk about Jefferson County, Alabama again? You know, where JP Morgan was involved in a deal to "help" the county replace its aging sewer system, and wound up costing them 25 times the original (and actual) price of the work? Oh, and let's not forget that several government officials and private-sector folks have gone to prison already for their involvement in this scandal - for bribery and related acts, while not one indictment has issued against a bank executive or the banks involved themselves.

Jamie Dimon is threatening governments (again), this time in Germany. The people have had quite enough of extortion and blackmail, Mr. Dimon. You might also want to consider that some of those "less-regulated" markets you might flee to, such as China, have a habit of solving regulatory problems not with indictments and juries but rather with summary imprisonment or even execution. Consider the folks in the "basic materials" business who allegedly got caught gaming the system in China recently - and were summarily tried and convicted. Others have simply been shot. We claim to be more civilized here in this country, which is one of the reasons your threat rings rather hollow - in those "unregulated" markets you're more likely to find a disgruntled investor wields an AK-47 rather than a summons or subpoena, and you know it. I double-dog-dare you to take your capital and move to any of those places - I'll be watching for the Youtube of your execution when you screw someone over in East Buoffo as a consequence of their "unregulated market", and promise to chortle when it is posted.

The people don't believe the SEC, Congress or the Obama administration. Bill Clinton is now saying he took "wrong advice" from Larry Summers and Bob Rubin. That "advice" included Gramm-Leach-Bliley, I might add, as well as derivatives. Let the record show that Larry Summers took a clean shot at bankrupting Harvard University, losing $14 billion of its endowment in just over a year's time. I'm sure some of that has come back with the stock market "recovery" (engineered via more phony accounting) but the fact remains that as Harvard's Corporation (in the legal sense) consists of seven members who are accountable to nobody but themselves. Bob Rubin, for his part, was entangled in Citi at the time of the Gramm-Leach-Bliley act's passage. Oh, and Rubin is on Harvard's board.

The people have every right to be skeptical. Indeed, perhaps cynicism is more appropriate than skepticism in this case, in that every step of the last ten years when it comes to financial firms and regulation appears to have been driven by one goal: to allow banksters and their cronies to loot and pillage the American people, who are then supposed to back them up when their fancy games go awry.

I'm tired of it - but I was tired of it back in 1998, 1999, 2000 and onward when I saw the pernicious and outrageous frauds being perpetrated against investors in so-called "new economy" businesses. Nearly all of them went bankrupt in the .COM crash. The simple fact of the matter is that almost none of these firms had any business going public in the first place - they were the starry-eyed dreams of some pimply kid barely out of business school (and sometimes not even that well-versed in the real world) backed by a private-equity or "angel" investor who knew how to game the system and pay off the investment banks via lots of fee-based business to issue "strong buys" on worthless securities.

As just one example I put forward the DSL providers of the day - Covad, Rythms and Northpoint. I talked with all three. All three presented me with a business model for "partnering" with them. A bit of quick math led me to the inescapable conclusion that they didn't have a prayer in hell of ever being profitable on an operating basis, say much less covering equipment depreciation and amortization. I passed on getting involved with any of them for that reason and all three later blew up, vindicating what was in fact a fairly simple set of calculations. So how did the investment banks and others who brought those firms public, all of whom clearly had at least as powerful a calculator as I did, justify their IPOs?

Virtually everyone got screwed by these games, not the least of which were the honest companies. IPOs that doubled on the first day were seen as a strong endorsement of the company instead of what they really were, which is a rip-off of the firm who left literal millions, and sometimes hundreds of millions, on the table to be stolen by the investment banks who exercised their "overallotments" and then sold into the first-day ramps. The underwriting institutions didn't give a damn if there was a sustainable business behind the S-1, so long as that first-day ramp job materialized and they could both earn their fee and the override on the over-allotment - the second often being multiples of the first.

The game never changed in the 2000s - this time we had banks scamming people on the value of so-called "AAA" mortgages and the constructs put together both out of them and referenced off them. Again the securities were worthless or nearly so, but the banks didn't care so long as they got their fees. And like the last time, they basked in the knowledge that they both would not wind up on the wrong end of an indictment and that if things got really bad (as they did this time) they could shove a gun up your nose and force you, the taxpayer, to bail them out.

The important point behind both of these tales is that without the fraudulent securities being issued NEITHER BUBBLE WOULD HAVE INFLATED. That is, neither was simply an "accident" or "starry-eyed dreamers" that got in over their heads. Both bubbles were INTENTIONAL scams fueled by Wall Street's seemingly-unending ability to package up trash and sell it while extracting their fees and "overrides". They then feign ignorance when what THEY KNEW was dead fish starts stinking up the place.

THIS MUST STOP and all the pretending won't do it. Nor will claims that we're writing "euthanasia" bills "for the future." The fact of the matter is that all of these institutions are and have been exercising privileges - the privilege to issue credit on the sovereign wealth of the United States.

That privilege is not the government's to bestow, it is we the people's, and we must withdraw that consent until the scamming is stopped by force of law.

Federally-guaranteed deposit-taking and transaction clearing is a ministerial function. To a large extent so should be lending with guaranteed funds, which I have repeatedly argued should devolve down into "One Dollar Of Capital." Return home mortgages to a 28/36 ratio set and 20% down for all federally-guaranteed loans, and all held or originated by any depository or otherwise-insured institution (including those with access to Fed facilities.)

If people want to gamble - that is, take risk of any sort - let them do it with their own capital but never with the taxpayer's. This means full reinstatement of Glass-Steagall and everything that comes with it. If Jamie Dimon and others don't like these rules then let them take their capital to some other country that doesn't mind having its economy detonated every five to seven years by these scoundrels.

Someone else will take his place and provide the necessary functions; a safe and solid 7-8% return isn't bad, after all, especially when it's government-guaranteed!

Our government and both political parties are severely miscalculating if they believe the anger in society right now is going to let this pass without real reform - not the cock-and-bull games being played by both sides of the aisle at present.

Faux "charges" and SEC "bluster and thunder" are not indictments. We have plenty of information not only in the public record but now irrefutably in the hands of Congress, such as the WaMu disaster, for lawmakers to demand both that existing laws against fraud be enforced and that these institutions all be broken up right here and now, today, with every dollar they stole (that still exists anyway) being clawed back.

There is even hard evidence that members of our government, in some cases, conspired with institutions to falsify accounting (e.g. IndyMac and backdated deposits), a toxic brew of corruption that threatens the vital trust between government and people on which civil order and stability rest.

The people will not sit for less than full enforcement of existing law, restitution for these acts and a reinstatement of Glass-Steagall's proscriptions. Over eight millions jobs were lost in this crash and more than five million additional people failed to find employment during the last so-called "recovery" as they entered the workforce. Even more Americans had their jobs shipped overseas and had their hands (and sometimes head) stepped on as they tried to climb the income ladder. The anger seething under the surface of society is not only palatable it is getting much worse by the day. I overhear conversations almost every time I'm out in public now and most of them are absolutely unsuitable for polite company. This is a marked change from last year as the hope of Obama's election has turned to the anger of recognition, even among Democrats, that we were conned - again.

The people are not talking about which brand of Girl Scout cookie to buy - that much I will assure you, and I'm talking about conversations overheard in the local supermarket - not exactly where you expect to find "nutjobs" of any persuasion talking about various things one doesn't usually think, say much less speak of openly. I shudder at the thought of what's being said behind closed doors where folks like me, who have and continue to preach working within the law, have never been and never will be invited.

How much longer can government get away with the games before something - or someone - snaps? I don't have the foggiest clue, but Friday proved that the stock market hasn't been rising as a consequence of an improving economy but rather on the belief by a handful of speculators that the looting and pillaging that was given free rein and license last spring when FASB was forced to change the accounting rules would not only be allowed to continue but would intensify.

The problem with this philosophy and course of action is that the American People in the main are literally being bled dry by the vampires on Wall Street. The most dangerous man of all is one who has lost everything - home, job, family - and thus has nothing left to lose.

Irrespective of the "pumpers" on Wall Street and in The Media the facts on the ground do not reflect the optimism - consumer "spending" has been held up by people not paying their mortgages, long-term unemployment has ravaged our states and communities while government has simply handed out more and more money via extensions of this and that program, papering over the rot in the economy with borrowed funds we cannot afford.

Government must step in and break these behemoths up. Not because they're too big to fail tomorrow, but because they did too much damage this time around and must not be allowed to get away with it, say much less prosper as a consequence. These acts were not errors of judgment or accidents they were willful and intentional actions taken with full knowledge of the consequences.

Bluntly, these banksters looted the public worldwide through two full cycles of boom and bust, they did it intentionally, and our nation cannot withstand another one of their attacks.

Those of you in Washington DC and State Governments who are reading this, get away from your insular world inside the beltway and state houses and meet with constituents - not as a Representative or Senator, but as an ordinary Joe. Leave the armed goon squad behind and drive a chevy to the local eatery, your local store, the coffee shop or WalMart in your town. Shut your yap for a week and just listen. Note the marked deterioration in mood, attitude and words you hear. That's real, it's dangerous, and you can only deal with it one way - by putting a stop to the looting and start with the prosecuting.

The people are pissed and they're not going to sit still for this. You will either stop it, right here and now, or you will lose your jobs. If you try to lie your way out of it as you have for the last decade you are taking a horrible risk, as this nation and indeed the world is a tinderbox, and little would be required to set off civil unrest or, far worse - war.

Remember, it wasn't just Americans that got screwed and are pissed off.

Do the right thing while there is still time.

John Paulson Needs A Good Lawyer:

Written by Simon Johnson
April 18, 2010 at 9:00 am

http://baselinescenario.com/2010/04/18/john-paulson-needs-a-good-lawyer/#more-7214

Of all the reactions so far to various dimensions of Goldman fraudulent securities “Fab” scandal, one stands out. On Bill Maher’s show, Friday night, I argued that John Paulson – the investor who helped design the CDO at the heart of the affair – should face serious legal consequences.

On the show, David Remnick of the New Yorker pointed out that Paulson has not been indicted. And since then numerous people have argued that Paulson did nothing wrong – rather that the fault purely lies with Goldman for not disclosing fully to investors who had designed the CDO.

But this is to mistake the nature of the crime here – and also to misread the legal strategy of the SEC.

The obvious targets are Goldman’s top executives, whom we know were deeply engaged with the housing side of their business in early 2007 – because it was an important part of their book and they were well aware that the market was in general going bad.

Either Goldman’s executives were well aware of the “Fab” and its implications – in which case they face serious potential criminal and civil penalties – or they did not have effective control over transactions that posed significant operational and financial risk to their organization.

They will undoubtedly pursue the “we did not know” defense – which of course debunks entirely the position taken by Gerry Corrigan (of Goldman and formerly head of the NY Fed) when I pressed him before the Senate Banking Committee in February. Corrigan claimed that Goldman’s risk management system is the best in the business and simply superb; the former may be true, but the latter claim will be blown up by Lloyd Blankfein’s own lawyers – they must, in order to keep him out of jail. (Aside to Mr. Blankfein’s lawyers: the people you are up against have already read 13 Bankers and may put it to good use; you might want to get a copy.)

And don’t be misled by the purely civil nature of the charges so far – and the fact that the announced target is only one transaction. This is a good strategy to uncover more information – for broader charges on related dimensions – and it allows congressional enquiries to pile on more freely.

As for John Paulson, the issue will of course be the “paper trail” – including emails and phone conversations. A great deal of pressure will be brought to bear on the people who have worked with him, many of whom now faced permanently broken careers in any case.

Here’s the legal theory to keep in mind. Mr. Paulson only stood to gain on a massive scale (or at all) if the securities in question were mispriced, i.e., because their true nature (that they had been picked by Mr. Paulson) was not disclosed. In other words, the Paulson transactions at this stage of the game only made sense if they involved fraud. The principals involved (Paulson and top Goldman people) are all super smart, with unmatched practical experience in this area; they get this totally.

John Paulson was not the trigger man – it was Goldman and its executives who withheld adverse material information from their customers. But if the entire scheme was Mr. Paulson’s idea – if he was in any legal sense the mastermind (obviously he was, but can you prove it beyond a reasonable doubt?) – then we are looking at potential conspiracy to commit fraud. And if he had conversations of any kind and at any time during this period with top Goldman executives, this will become even more interesting - so of course all relevant phone records will now be subpoenaed.

Mr. Paulson should be banned from securities markets for life. If that is not possible under current rules and regulations, those should be changed so they can apply. If that change requires an Act of Congress, so be it.

There is fraud at the heart of Wall Street. It is time to end that.

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

SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages:

http://www.sec.gov/news/press/2010/2010-59.htm

Washington, D.C., April 16, 2010 — The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.



The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."

Kenneth Lench, Chief of the SEC's Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."

The SEC alleges that one of the world's largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.

According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.

The SEC's complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.

The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for ABACUS 2007-AC1. Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process. In addition, he misled ACA into believing that Paulson & Co. invested approximately $200 million in the equity of ABACUS, indicating that Paulson & Co.'s interests in the collateral selection process were closely aligned with ACA's interests. In reality, however, their interests were sharply conflicting.

According to the SEC's complaint, the deal closed on April 26, 2007, and Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By Oct. 24, 2007, 83 percent of the RMBS in the ABACUS portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded.

Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.

The SEC's complaint charges Goldman Sachs and Tourre with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties.

For more information about this enforcement action, contact:

Lorin L. Reisner
Deputy Director, SEC Enforcement Division
(202) 551-4787

Kenneth R. Lench
Chief, Structured and New Products Unit, SEC Enforcement Division
(202) 551-4938

Reid A. Muoio
Deputy Chief, Structured and New Products Unit, SEC Enforcement Division
(202) 551-4488

As you can see, shares of GS are down over 13% today. The first chart is a one day chart of today's action, and the second chart is a daily chart that shows how serious the $24.00 drop in share price really is:

Where is $421.8 Billion That Went Out of the Federal Reserve?

http://www.commodityonline.com/news/Where-is-$4218-bn-that-went-out-of-Fed-Reserve-27410-3-1.html



By Dr Jeffrey Lewis
April 15, 2010

The St. Louis Federal Reserve Bank, which documents the inner workings and balance sheets at the nation's central bank, just released new research and data suggesting that the Federal Reserve lent $421.8 billion – with no one knowing exactly where it went.

Where’s the Money?

Each week, the St. Louis Fed releases data regarding the Federal Reserve's activity and public balance sheets. In ordinary times, this data is usually largely ignored, as the mainstream media has little interest in probing into the “small” $5-10 billion changes in the Total Loans and Leases of Commercial Banks. The week of March 24-31 was different, however, as the Federal Reserve made $421.8 billion in new loans, more than it made in the week following the Fed's big moves to combat the financial crisis in 2008!

Is the Fed Bailing out Greece?

Economists are all but left in the dark on the actual operations behind the scenes, and they have minimal data to investigate other than what the Federal Reserve is willing to release to the public. However, the timeliness of this most recent surge in lending activity suggests that the Federal Reserve may be taking a hand in bailing out foreign nations, or Greece in particular, by shoveling funds through commercial banks.

This wouldn't be the first time a bank was used to bail out foreign debtors. AIG, the leading recipient of TARP funds, was used as a gateway to transfer US taxpayer funds to foreign banks owed money. Of course, the ailing insurance company virtually collapsed nonetheless, but long after the funds were delivered from the US Treasury to foreign institutions.

Pull the Alarms!

Rarely are large monetary policy decisions made without an explanation from the Federal Reserve, and even more rarely are they conducted in just one week. To put the recent lending in perspective, $421.8 billion is more than the total increases in lending throughout 2005. There has never in the history of the Federal Reserve been such a massive increase in total lending. And never should anyone expect that lending of this magnitude would be done without any explanation. To put it simply, there is big money moving, and no one knows where it's going, for better or for worse.

Timing is Everything

The huge jump in lending comes just days after the Federal Reserve ends its operations to buy agency and other US debt, and just a few weeks after the looming European debt crisis emerges. Clearly, the timing couldn't be any more interesting, as the Federal Reserve is either indirectly financing international bailouts or continuing to expand the money supply without any prior knowledge.

Gold and Silver Set to Soar

Either explanation for the gross increase in the money supply is a boon for precious metals, which have experienced an even more impressive month as manipulation comes to light. If the Federal Reserve is acting to bail out foreign nations, or to buy up Treasuries or other Agency debt, it should be clear that inflation is sure to run rampant. Head for the hills – unprecedented monetary policy is taking place without any authorization, explanation, or (from what we can tell) causation.

How Financial Reporters Create Illusion to Cover Up Wall Street's Scams:

http://www.alternet.org/story/146414/how_financial_reporters_create_illusion_to_cover_up_wall_street%27s_scams/

By Scott Thill / AlterNet
April 13, 2010

The corporate media's job is to sell confidence on Wall Street's numbers, rather than tempered or even depressed expectations, no matter how realistic they may be.

As Charles Dickens reminded us in his classic novel Great Expectations, the line between crime and cash is a continually blurry one. And it's easily manipulated by language and narrow self-interest.

For example, let's just consider the overly extensive use of one term: "Unexpectedly." It is especially ubiquitous in finance journalism, where it is repeatedly used to console a rightfully nervous readership that, while good news is a great expectation, bad news just seems to comes out of nowhere. Although I've been informally following this clumsy usage for years now since diving into the hazy, crazy world of finance, I've never run out of daily examples. Just plug the term "unexpectedly" into Google News on any given day, and neither will you.

Here's a few that Google coughed up during this writing: "U.S. Home Sales Fall Unexpectedly in Feb.,"ABC News reported. "French Consumer Confidence Unexpectedly Falls On Job Concern," Bloomberg News reported. "South Africa Unexpectedly Cuts Rates to 6.5%," the Wall Street Journal reported.

Unpacking any of these headlines should be simple enough for those who aren't economists, even without the benefit of reading the stories themselves. Nothing in the average American's life and salary, to say nothing of the lenders and companies he or she has to deal with, warrants the surveyed optimism of economists who think home sales should be going up, rather than down, in any given month.

Meanwhile, France isn't immune to our continuing global recession, which is being further enhanced by deepening unemployment and rising corporate profits. So it's no wonder the French don't feel like spending money, when they don't have jobs. And although you need to be somewhat savvy on international currencies and markets to suss out the meaning of South Africa's rate cut, it's not a stretch to look at the headline and guess, correctly, that the nation is trying to encourage demand for its stocks and bonds. In other words, none of these things are unexpected. They make sense and cents.

Except to economists and the traders they enable, both of whom lately have been blowing calls with incorrect predictions, at a major cost to all of us.

"We always use the terms 'expected' and 'unexpected' when a rate decision, earnings and other data emerge counter to our surveys" of economists, Bloomberg spokesperson Judith Czelusniak told AlterNet.

"For better or for worse, Wall Street is all a game of expectations," Paul La Monica, editor-at-large for CNN Money online, explained to AlterNet. "Stocks move based on how a number, be it an economic report or corporate earnings report, looks compared to expectations. That's an admittedly myopic point of view, but that's the way trading works."

Or doesn't. From ex-hedge funder Jim Cramer screaming at CNBC's Mad Money viewers to keep buying Bear Stearns stocks on the eve of its collapse, to the consensus of top politicians and economists totally missing the recession, and down to the current cheerleaders for our so-called economic recovery, the market has been a volatile mess for years because of suspicious expectations. Those unreliable sources and a great many other drinkers of guilt-free derivatives Kool-Aid thought they could keep shuffling stratagems and paper, and the market would just keep inflating. But anyone with an understanding of just the term "bubble" understands that it is defined not by its inflation, but its annihilation. If it doesn't pop, it isn't a bubble. End of lesson.

This unsustainable desire for prophets and profits has led us down some dark alleys, where reality has administered ceaseless beatings to our integrity and accounts. But not our perception, which as advertisers often say, is reality itself. For some reason, that desire for great expectations unmoored from reality perseveres, and remains enchanted by a political and economic paradise that is not only incorrect, but impossible. Instead of continuing to rely on those who can't seem to separate their perception from reality, we should be ignoring them outright. If anything, we shouldn't keep paying them for being wrong when it literally counts, which starts with the headlines and ends with our wallets.

"How someone can read a collection of forecasts, and from that deduce a lack of evidence of potential recession is far beyond me," said Barry Ritholz, financial analyst at the Big Picture and author of Bailout Nation, after Briefing.com's president Dick Green analyzed the prediction of "top Wall Street economists" in November 2007 and concluded that "there is no evidence of recession...there is no evidence of a broad credit crunch." That was mere months before the failure of Lehman Brothers and Bear Stearns. "It's disingenuous beyond belief," Ritholz added.

Why Are 25 Hedge Fund Managers Worth 658,000 Teachers?

http://www.huffingtonpost.com/les-leopold/why-are-25-hedge-fund-man_b_531420.html?view=print

In 2009, the worst economic year for working people since the Great Depression, the top 25 hedge fund managers walked off with an average of $1 billion each. With the money those 25 people "earned," we could have hired 658,000 entry level teachers. (They make about $38,000 a year, including benefits.) Those educators could have brought along over 13 million young people, assuming a class size of 20. That's some value.

Apparently the 25 hedge managers did something that is even more valued in our society. But how valuable was it, really? To assess that, we need to answer a few basic questions:

1. What do hedge managers do?

They run funds into which very rich people put money to make even more money. Hedge fund managers move the money around in very risky ways to get the most enormous yields possible. (Wealthy investors believe they are entitled to double digit and even triple digit returns.)

Because hedge funds are considered playthings for the rich, who presumably are fully aware of all the risks, they are exempt from most financial regulations. (We'll soon see if the financial reform bill now moving through the Senate changes this in any substantial way.)

The wealthy will have placed an estimated $2 trillion into hedge funds by the end of this year. (That's about $6,500 for every man, woman and child in the U.S.)

2. Where does all that hedge fund money come from?

It's mostly excess cash the super-rich have in hand now that their tax rates have dramatically declined. In the 1970s the marginal rate on those with incomes above $3 million (in today's dollars) was 70 percent. Today, the effective rate on the 400 richest Americans is 16 percent, according to the most recent IRS data.

The wonderful thing about putting your money in a hedge fund (or managing one) is that the income you get from it is not taxed as income (say, officially at the rate of 35 percent). Instead, it is treated as a business investment, something that's good for the economy and that we need to encourage through a low tax -- a "capital gain." The tax rate on capital gains is 15 percent. This is one reason that Warren Buffett can say that he pays a smaller percentage in taxes than his secretary.

3. How do hedge funds make money?

Some hedge fund managers use computerized modeling to decide where to invest or to make investments automatically. Other managers claim they just make good judgment calls. They also make enormous bets using lots of leverage and deploy an arsenal of derivatives.

It's a dicey business, but it's not supposed to put the larger system at risk... until it does. In the late 1990s, the hedge fund known as Long Term Capital Management, run by the brightest bulbs in the financial universe (including a couple of Nobel laureates), found itself with over $100 billion in assets but only $4 billion in capital. When that upside down pyramid began to crumble, the effect was systemic. So systemic that the Federal Reserve, fearing a major meltdown of the financial markets, forced Wall Street banks and investment houses to bail out the fund's investors. Some economists argue that risky gambling by hedge funds did not cause the current crisis. But no one has conducted an impartial investigation into that question.

The $1 billion each those 25 hedge fund managers netted (for themselves) was impressive -- but doing it in the year 2009 was also slap in the face of struggling Americans. That's because hedge funds would have earned little or no money at all in 2009 had the government not bailed out the financial sector with trillions in loans, asset guarantees and other forms of financial assistance. It was, in effect, a generous gift from we the taxpayers. Much of that money was "earned" by betting that the government would not let the financial sector collapse. Smart bet.

In principle hedge funds would do little harm if they were not implicitly backstopped by the taxpayer in this way. Here's how one sage financial expert put it to me recently:

Personally, I do not care whether hedge funds and other pools of unregulated funds gamble in opaque derivatives rated by incompetent ratings agencies. But I do want them to fail when their bets go bad. Nor do I want them to be rescued in the event of a run to liquidity. If they are leveraged and cannot come up with cash, they should fail. It will be painful for their creditors. So be it, the more pain, the better. That is the downside to private property. Greed is good, but must be balanced by the fear of failure. Without failure there is no fear.

On the other hand, I want to have a protected and closely regulated portion of the financial sector for those who do not want to take excessive risks. And any institution that bets with "house money"--that is, that has access to the Fed in the case of a liquidity problem and to the Treasury in the case of insolvency--must be constrained. That is the direction that true reform ought to take.

4. Do hedge funds create real value that is essential for our economy and our society?

Here's a test: Imagine what would happen if they disappeared entirely. People working at the 8,000 or so hedge funds -- a relatively small number of people -- would lose their jobs. But it's unlikely that the national or world economy would suffer at all. The wealthy would simply move their money to other investments. They might even decide to make longer term investments that would be used to produce real goods and services.

But wait, aren't these piles of money a valuable source of funds for investment in the real economy? Don't hedge funds make our markets work more efficiently? By betting against overvalued currencies and bogus balance sheets of toxic-chocked banks, don't hedge funds police the bad guys? Aren't they the essential glue for rebuilding America?

If any of those good things happen, they're an accidental byproduct. The real job of hedge funds is to allow very rich people to make more money as quickly as possible, preferably without tying up the cash for too long. Use hedge fund money for a leveraged buyout that can be flipped quickly for big profits? Sure. Use it to speculate on the value of currency or to make a quick dash in and out of a credit default swap? You betcha.

If we step back and look at the big game, we can see that hedge funds are hard at work skimming profits from the financial sector, which in turn is living off the largess of the American taxpayer. It's all part of the great financialization of the U.S. economy that began in earnest when the financial sector was deregulated in the late 1970s. Over the years, financial sector profits have risen to nearly 40 percent of all corporate profits. And sadly, it's not because financial firms helped our economy grow. It's because they figured out how to run a very profitable casino for the wealthy. And then hedge funds came along and figured out how to skim the skim from those casinos.

5. So how can 25 hedge fund managers be "worth" $658,000 new teachers?

They aren't. And I bet the leading hedge managers themselves would admit it.

But our economic system isn't rewarding real value. While the hedge fund 25 are living large, teachers everywhere are getting the axe. Why the layoffs? Because state and local governments aren't collecting enough taxes -- not since Wall Street investors crashed the economy.

In our New Jersey town, we are laying off 85 teachers. Instead we ought to be hiring 85 more to reduce class size and improve support programs for those students who desperately need them. It's obscene that we're shoveling money to the super-rich even as we force teachers to join the ranks of the unemployed. Already 29 million Americans are without work or forced to work only part-time.

How to tame these runaway paydays? Just institute a financial transaction tax or a windfall profits tax. The fix is technically simple but politically complex. It's going to take a lot of political will -- over a long period of time -- to reorder our most basic economic values.

In the meantime, try explaining to your kids why school programs are being cut while 25 shrewd gamblers are living like Pharaohs.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.

The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going:

The Magnetar Trade:

http://www.propublica.org/feature/the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble-going

Source:
The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going:
by Jesse Eisinger and Jake Bernstein
ProPublica – April 9, 2010

By Barry Ritholtz
April 11th, 2010, 9:30AM

Former WSJ reporter Jesse Eisinger teamed up with author and reporter Jake Bernstein at ProPublica.org. They spent 7 months investigating a series of hedge fund trades made against subprime mortgages, CDS, etc.

The result is this thorough detailed analysis of how this took place: The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going (It is available at TBP Mirror)

Here’s an excerpt:

“How Magnetar pulled this off is one of the untold stories of the meltdown. Only a small group of Wall Street insiders was privy to what became known as the Magnetar Trade. Nearly all of those approached by ProPublica declined to talk on the record, fearing their careers would be hurt if they spoke publicly. But interviews with participants, e-mails, thousands of pages of documents and details about the securities that until now have not been publicly disclosed shed light on an arcane, secretive corner of Wall Street.

According to bankers and others involved, the Magnetar Trade worked this way: The hedge fund bought the riskiest portion of a kind of securities known as collateralized debt obligations — CDOs. If housing prices kept rising, this would provide a solid return for many years. But that’s not what hedge funds are after. They want outsized gains, the sooner the better, and Magnetar set itself up for a huge win: It placed bets that portions of its own deals would fail.

Along the way, it did something to enhance the chances of that happening, according to several people with direct knowledge of the deals. They say Magnetar pressed to include riskier assets in their CDOs that would make the investments more vulnerable to failure. The hedge fund acknowledges it bet against its own deals but says the majority of its short positions, as they are known on Wall Street, involved similar CDOs that it did not own. Magnetar says it never selected the assets that went into its CDOs”

The full piece is fascinating, and well worth your Sunday morning.

Also noteworthy: This is now how investigative journalism gets done in America. Its no0w about private funding of non-profit news organizations. They are insulated from ratings, news stand sales, and focus group reports.

Thank goodness ProPublica exists. They are the silver lining in the collapse of American journalism . . .

http://www.ritholtz.com/blog/2010/04/magnetar-trade/

A Debt Level Great Enough To Threaten The Dollar Rating:

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

by Bob Chapman
Posted: April 7 2010

Your purchasing power is less and less with every passing day, changes coming to currencies, no end to corruption in government, Wall Street, and banking, US states on the verge of bankruptcy, economic and financial zombies on the old continent, globalization has brought us to the brink of collapse, Interest rate volatility to come soon, US debt far over GDP, property abandoned.

Almost every day in almost any currency your purchasing power in terms of gold is less and less. Thus, these currencies in which you save the fruits of your labor are cheating you out of your savings.

The US dollar is particularly vulnerable because of its staggering debt even though it is the world reserve currency. In fact the debt is so onerous that we believe the quality rating of the dollar could be lowered by the end of the year. Many other currencies face the same dilemma and in the final analysis only gold will be worth what it is today or in the future.

Unless the US government expropriates Americans’ retirement plans they won’t be able to fund their sovereign debt. This situation is exacerbated by continued fiscal deficits of some $1.8 trillion. The administration and the Democratic Party are bound and determined to destroy America financially. Between government, Wall Street and banking America is being destroyed. This did not just happen that way; it was planned that way. When people discover what has been done to them there will probably be a revolution.

Government spends excessively, as free trade and globalization keeps America under a staggering load of unemployment in what has become a corporatist fascist nation controlled by Wall Street and banking and run by Marxists, who for years have operated in the shadows as bureaucrats.

Many American states are on the edge of bankruptcy. Their only hope is massive layoffs and reduced services adding to the already massive unemployment that plagues our nation. The situation is close presently to resembling the 1930s and that is after trillions of dollars created out of thin air permeated the economy. Worse yet, nothing has been done deliberately to solve the problems. One might think the antics of government; banking and Wall Street were deliberate-unfortunately they are. It won’t be long before everything will be nationalized and corporatist fascism will be in full flower.

Corruption in government, Wall Street and banking knows no end. This in addition to the looting of funds for Social Security and Medicare, that the Treasury now must fund, when they cannot even fund current debt without having the Fed buy it with money created out of thin air. Talk about inflation – it is surely on the way. If we use GAAP accounting, not the US government’s cash figures, the deficit is really in the vicinity of $4.5 to $5 trillion, not $1.8 trillion. This, of course, is nothing new and the same lying and secrecy is in force worldwide. All that people have saved worldwide has been stolen from them - they just do not know it yet.

The situation in Europe is so bad that all of Europe is attacking Germany because they save and do not spend enough and their balance of payments surplus is obscene to other spenders not only in the euro zone, but in the entire EU as well. Their thought is Germany should be losers like we are. Then there are the PIIGS who care about little or nothing. We know we lived for years in all of these countries and fully understand where they are coming from. They all wanted socialism and it has doomed them, as has the euro zone and the European Union. They are about to discover socialism and debt are about to destroy them. You have made yourselves into economic and financial zombies. There is no one left to bail you out. Subsidizing everything doesn’t work as they are soon to find out. When Europe and America fail unfortunately they are going to in part take the entire world down with them – no one is going to be spared.

We have an economy in a state of collapse and part of the reason for that is free trade, globalization, offshoring and outsourcing, which since 2000 has cost America some 8 million good quality jobs. Where are you Smoot-Hawley now that we need you? There are many reasons why the American economy is collapsing and free trade, British mercantilism, is one of them.

As we have said for months there is a multilateral change coming in currencies. A massive devaluation of all currencies and a debt settlement between countries. When that happens consumers worldwide will lose 2/3’s of their purchasing power on the final leg down into deflationary depression, which is probably 1-1/2 to 2 years away. Your only protection against such events is holding gold and silver related assets.

Those who have opted for general stock investments since 1998 have come out even if they were lucky and that includes massive market manipulation by our government. Not just failed policies. The creation in August 1988 of the President’s Working Group on Financial Markets” has been a disaster for free markets and a gift to dictators and would be tyrants. The markets are a giant scam and their underpinnings are about to collapse. There has been little or no growth over those years. Real estate bubbles in residential and commercial markets have collapsed and the stock market will soon follow. Hitting you right in the forehead is almost a 4% yield on 10-year T-notes that could well become 5% by yearend, which we predicted late last year. That will put the 30-year fixed rate mortgage at 6-1/4% to 6-1/2%. What do you think that will do to real estate, markets and profits? This is mainly because of sovereign debt that grows exponentially every minute of every day. These pyromaniacs in the White House and Congress add to the conflagration all day every day. The result has been a 25% loss in the S&P since March of 2000, and a loss versus gold of 75%. Gold has risen from $252 to $1,224 and silver from $3.50 to $20.00 with massive government and Fed suppression. Where do you think your money should have been and where your money should be? In gold and silver bullion, coins and shares. Yes, as usual we were crazy and we were right and we are going to continue to be right, because we understand what the Illuminists are up too.

You live in a bankrupt country, along with 18 other major bankrupts, and you will soon learn how you are going to lose everything you have worked a lifetime for. A rise in interest rates of 5% adds $620 billion annually to the US debt in interest alone and that is rising exponentially. The US, nor any government, can survive such debt service.

We are calling inflation, real inflation, not the official variety of 3%, but at 8%. John Williams says on the things you buy every day it is 10%. We should easily see 14-5/8% inflation by the end of the year just as we did 2-1/2 years ago.

The Fed has ended its $1.25 trillion program of buying toxic debt from lenders. We do not know if that is the correct figure, we do not know from whom they were purchased and we do not know what was paid for the MBS, because it is a secret. This purchase has put downward pressure on interest rates for the past 15 months. This is an abnormal procedure and it can be expected that interest rates would move higher. It also means that the fed will now be a seller in the market as the FDIC is attempting to be. If sold these securities will put downward pressure on these bonds and force higher rates in a market that is already subject to crowding out by the treasury. In addition, quantitative easing is being phased out, putting further upward pressure on rates. The Fed if it continues these policies may stem hyperinflation but they run the distinct risk of having deflation run out of control, which could easily drive the economy into deflationary depression. This is a super human feat we do not see being accomplished without major damage, at the least.

Rate volatility is going to increase dramatically, as the Fed works to hold the 10-year T-bill rate below 4%. This is what they did previously at great cost to savers and taxpayers.

As rates climb the dollar carry trade becomes much less attractive and as it is unwound borrowed money is pulled from other investments, such as bonds putting more upward pressure on rates and at the same time downward pressure on stocks, which have been purchased with borrowed money. If the Fed tightens, as they might on Wednesday, yields will move even higher. If that happens those in the carry trade and bonds and shares will see gains evaporate and sales of both bonds and stock will ensue, as the carry trade is unwound. This is what markets are now facing.

This takes us to municipal bonds and particularly California, which has $85 billion in debt, that has to be paid by its citizens, of which about 40% do not pay any taxes. In addition it officially has 12.4% unemployment, which is really about 25% and getting worse daily. This is a state with $1 trillion to $3.5 trillion in unfunded pensions and the world’s 8th largest economy. This is a state that, via federal subsidy, sold “Build America Bonds”, bonds yielding 6.3%, or 2.4%, higher rates than Treasuries. California is on the edge of bankruptcy and their municipal bonds should be sold, as many from other states should be sold as well. States won’t work out of their problems for years.

Last week the Dow rose 0.7%; S&P 1%, the Russell 2000 0.7% and the Nasdaq was unchanged. Banks rose 0.3%; broker/dealers 0.8%; cyclicals 0.8%; transports 1.2%; consumers 1.2%, as utilities fell 1.8%. High tech fell 0.3% as semis gained 1.1% and Internets fell 0.2%. Biotechs fell 0.2%; gold gained $12.00; the HUI rose 6.2% and the USDX fell 0.6% to 81.17.

Two-year Treasury bills rose 6 bps to 1.02%; the 10-year T-notes rose 10 bps to 3.95% and the 10-year German bund fell 7 bps to 3.08%.

The Freddie Mac 30-year fixed rate mortgage rose 9 bps to 5.08%; the 15’s rose 5 bps to 4.39%; one-year ARMs fell 15 bps to 4.05% and jumbos rose 1 bps to 5.83%.

Fed credit declined $7.4 billion. Fed foreign holdings of Treasury, Agency debt rose $7.2 billion to a record of $3.020 trillion. Custody holdings for foreign central banks increased $64.5 billion just year-to-date, and year-on-year 15.7%.

M2 narrow money supply fell $10 billion.

Total money market fund assets fell $30 billion to $2.983 trillion, the first time below $3 trillion since 10/07. Year-to-date it is off $311 billion and year-on-year it is off 22.2%.

Commercial paper fell $5.2 billion, or 20.8% ytd and 24.9% yoy.

America’s debt is now $31 trillion, or 2-1/2 times US GDP. Americans on average only own 11% of their home the remainder is debt. Home prices are headed lower until 2013, so 20% lower prices are a certainty. In some areas homes have already fallen 60% to 75%. This situation will feed on itself for years and bankruptcies and inventory for sale will flourish for years. About 45% of homes have mortgages. We wrote five years ago that the government wants to own and nationalize those homes, so they can control the public.

As we wrote earlier we expect another large stimulus plan soon and the Fed to reverse gears and flood the world with money sometime soon. This should be the last rescue and the result will be hyperinflation followed by collapse and a deflationary depression. This is the last chance to buy gold and silver inexpensively.

If you do not think there was inflation in 2007 and 2008 homeowners insurance rose 24%, in 2008 it rose 31% and again in 2009-10 it rose 31%.

Treasury debt is on the ropes and is about to cause the Illuminists real trouble, along with higher interest rates. Later this year or early next year debt as a percentage will reach 95%. From there on its collapse. How can anyone conceive deficits of more than $10 trillion over the next ten years?

The ISM Non-Manufacturing Index release by the Institute for Supply Management rose in March to 55.4 from 53.0. The index reached the highest level since November of 2007.

The increase to 55.4 was above market expectations of an increase to 53.3. The data shows that the economic activity in the US continues to improve.

More Americans unexpectedly signed contracts in February to buy previously owned homes, signaling government efforts to support the market will start pay off.

The index of purchase agreements, or pending home sales, rose 8.2 percent, the second-biggest gain on record and the largest since October 2001, after a revised 7.8 percent drop in January, the National Association of Realtors announced today in Washington.

Hedge funds that aim to profit from macroeconomic upheavals have had a lacklustre start to 2010, in spite of some of the biggest international monetary crises in more than a decade.

http://www.ft.com/cms/s/0/b8e7ab2e-400f-11df-8d23-00144feabdc0.html?ftcamp=rss - The Greek debt crisis and steep falls in value for both the euro and sterling have failed to translate into noticeable gains for most macro managers, many of whom predicted a stellar year on the back of huge global economic rebalancing.

So-called global macro hedge funds, which specialise in bets on interest rates, sovereign bonds and currencies, have on average lost 1.25 per cent on investments so far this year, according to industry data compiled by Hedge Fund Research, a Chicago-based index compiler.

Many of the hedge fund industry’s biggest names have so far failed to turn market crises to their advantage often in spite of fervent political criticism linking them to damaging market “speculation”.

The 5-foot alligator lurking in the algae-green waters of the community swimming pool was not the worst thing code-enforcement officers have found in recent years at AAA Apartments in Cocoa.

Bathrooms infested with mold. Walls with gaping holes where air conditioners had been ripped out. Garbage and trash strewn about the 52-unit complex. The city began issuing code-violation fines in 2007, back at the beginning of the housing slump, and the apartments' co-owners soon owed the city $1.8 million more than three times the current list price of the property, and enough money to motivate the now-former co-owners to try bribing a code-enforcement officer.

AAA Apartments, now bank-owned, may be an example of things to come. As home foreclosures continue to mount throughout Central Florida, code-enforcement officers say apartments, condominiums and other commercial buildings are being abandoned by their owners and repossessed by banks in growing numbers.

A surprise Fed announcement eclipsed the disappointing March Employment Report on Friday. Yes, it is a disappointment despite the media and permabull spin, because the Street expected March NFP to exceed 200k. One forecast had the job gain at 400k. But only 48k temporary Census workers were recorded. So only 162k NFP were reported.

Birth Death Model jobs are 81k, even though ADP, who actually does a count, showed small business lost 112k jobs. Professional services gained 11,000 jobs, but 40,000 were part-time jobs.

Review and determination by the Board of Governors of the advance and discount rates to be charged by Federal Reserve Banks.

Traders quickly surmised that if the Fed is going to allow public access to an emergency meeting to discuss a possible discount rate hike, the probability is very high that a discount rate will occur soon.

The probable reason for the public airing is to disabuse the notion that the Fed’s secrecy keeps the public in the dark about its operations while it tips coming policy to insiders who profit on the inside info.

Most of the financial media ignored the Fed notice and reported the dollar surged because the jobs report indicated the economy had turned the corner. How is this possible when the number of jobs were below the consensus forecast?

Other financial media types spun the disappointing NFP as good news because it means the Fed cannot hike rates. But the dollar rally contradicts this notion…If anything, SPMs jumped on asset allocation, which will be a temporary boost for stocks. Perhaps the past months’ upward revisions were a factor.

The change in total nonfarm payroll employment for January was revised from -26,000 to +14,000, and the change for February was revised from -36,000 to -14,000.

Once again we see chicanery in the March Employment because the Household Survey shows a gain of 264k jobs but ‘Men 20 years & over’ accounted for a 290k job gain. ‘Women 20 years & over’ LOST 42k jobs. This is absurd.

You might recall that we noted that the January Employment Report recorded a 541k jobs increase in the Household Survey due to an increase of 529k of jobs for ‘Women 20 years & over’, while ‘Men 20 years & over’ LOST 1k jobs. This is impossible!

Now we see the opposite scheme ‘Men 20 years & over’ gained 290k jobs; women lost 42k jobs.

The Household Survey shows an increase of 308,000 jobs, but the BLS did not report this in the preamble to the report. Most of the gain is due to 233,000 gain in ‘Men 20 years and older’. ‘Men 16 year and older’ account for 297,000 of the 308,000 jobs gain in the Household Survey! For February, ‘Women 20 years of age and older’ increased only 11,000.

Wages fell 0.1% (+0.2% expected), a record for the data series; but it only goes back to 2006. Wages should increase before employment increases due to the high cost of benefits.

U6, comprehensive unemployment, increase 0.1 to 16.9% in March. ‘Unemployed for 27 weeks or more’ hit a record 44.1%. Per Alan Abelson, the odds of finding a job sank to 18.7% from Feb’s 20.1%. The Exhaust Rate (people that have exhausted unemployment benefits) hit 54.01% for February.

Gallup Daily tracking finds that 20.3% of the U.S. workforce was underemployed in March. [The 149,268 consumer bankruptcies filed in March represented the highest monthly consumer filing total since Congress overhauled the Bankruptcy Code in 2005.]

For the week ended Wednesday, the Fed’s balance contracted $5.992B due to the sale of $5.103B of MBS. The Fed monetized $1.5B of agencies.

US banks earned $2.5bn last year from an accounting rule that enables them to book gains – known as “Christmas capital” by buying assets at a discount, a new study shows. More than half of all acquisitions of failed banks last year resulted in such gains, according to SNL Financial, which compiled the data.

Regulators Shut Down South Carolina Bank; Makes 42 US Bank Failures This Year

http://finance.yahoo.com/news/Regulators-shut-South-apf-1589099445.html?x=0&sec=topStories&pos=2&asset=&ccode=

Marcy Gordon, AP Business Writer, On Friday April 9, 2010, 5:41 pm EDT

WASHINGTON (AP) -- Regulators on Friday shut down a bank in South Carolina, marking 42 bank failures in the U.S. so far this year amid mounting loan defaults, especially in commercial real estate.

The Federal Deposit Insurance Corp. took over Beach First National Bank, based in Myrtle Beach, S.C., with $585.1 million in assets and $516 million in deposits. Bank of North Carolina, based in Thomasville, N.C., agreed to assume the assets and deposits of the failed bank.

In addition, the FDIC and Bank of North Carolina agreed to share losses on $497.9 million of Beach First National Bank's loans and other assets.

The failure of Beach First is expected to cost the deposit insurance fund $130.3 million.

There were 140 bank failures in the U.S. last year, the highest annual tally since 1992 at the height of the savings and loan crisis. They cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008 and only three succumbed in 2007.

The number of bank failures likely will peak this year and will be slightly higher than in 2009, FDIC Chairman Sheila Bair said recently.

As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, hitting a $20.9 billion deficit as of Dec. 31.

The number of banks on the FDIC's confidential "problem" list jumped to 702 in the fourth quarter from 552 three months earlier, even as the industry squeezed out a small profit. Still, nearly one in every three banks reported a net loss for the latest quarter.

The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.

The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.

Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government. Apart from the fund, the FDIC has about $66 billion in cash and securities available in reserve to cover losses at failed banks.

CIGX - Did Star Scientific Just Find a Cure for Alzheimer's Disease?

http://seekingalpha.com/article/197650-did-star-scientific-just-find-a-cure-for-alzheimer-s-disease

By James Altucher
April 8, 2010

Fundamental Analysis page for CIGX:

http://finviz.com/quote.ashx?t=cigx

Company website:

http://www.starscientific.com/

Daily chart:



A few weeks ago I wrote about CIGX (Nasdaq) when it was trading around $1.60. Currently it's at $2.50, having gone as high as $3.67 Tuesday on the news that the Roskamp Institute, the premier institute for the study of Alzheimer's Disease, had found evidence that the Star Scientific (CIGX) product breaks down the beta-amyloid plaque that causes Alzheimer's. I've written in the past about Alzheimer's for the WSJ and for thestreet.com and to my knowledge no product out there breaks down this plaque. For the reasons below, I think this new news could ultimately drive the stock to the $15-20 range.

In my earlier article I mentioned the Roskamp Institute because I was trying to connect the dots as to why Robert Roskamp, the guy who finances the institute, would buy $1mm worth of CIGX stock. The dot-connecting paid off for readers and proved accurate as Tuesday the institute came out with a press release that announced the institute is exploring a cure for Alzherimer's with a component developed by Star Scientific (CIGX) .

Why is this institute important? Michael Mullan, the chief scientist for the institute is the guy who made the discovery that the beta-amyloid chemical is what causes the plaque to build up in the brain, causing Alzheimers.

Most drugs that have gone through FDA trials since then for Alzheimer's have revolved around different techniques for bringing down this plaque. None of the trials have succeeded but clearly the search for a cure, even prior to an FDA approval, is sufficient enough to drive billions of dollars in value:

Examples:

Medivation (MDVN) - The company was trading at a $1.5 billion dollar market cap and lost over a billion dollars in valuation when the FDA put a stop to their trials.

Johnson & Johnson (JNJ) - JNJ pushed back results until 2012 for an Alzheimer's trial they were doing for Elan (ELN). $5bb in market value was lost in a day.

Pfizer (PFE) - Wyeth: In a Barrons article from 2008, the writer states that Wyeth (now bought by Pfizer) could go up in value about 20% (about $10bb in value at the time) if their Alzheimer's vaccine came to market. Their initial attempt at a drug failed in 2002.

As I wrote in my worst selling book, The Forever Portfolio (which, by the way, the publisher now informs me will be coming out in paperback shortly), Alzheimer's is the third largest killer in the United States, behind heart disease and all cancers combined. If you live long enough, you will get Alzheimer's.

So what do we know now?

From the press release:

Preliminary tests performed by the Roskamp Institute show that when the compound developed by [CIGX] is applied to cells, B-amyloid is reduced. Also, the compound appears to encourage new neuronal cell growth.

This is why I believe the stock initially jumped 20% higher within seconds of the release coming out. When comparing this to companies that have drugs in FDA trials (but no success yet) those companies usually have a market cap in the billions even if its unknown whether or not the drug will actually work. CIGX's market cap is about $250mm.

The release goes on to say:

Results in cells do not necessarily translate to human testing, and additional work needs to be completed to determine whether the compound will have significant B-amyloid lowering effects in humans.

I think this was the critical line that got short-term traders to sell. As one fund manager IMed me, "It could take 5-7 years to put together and FDA approved clinical trial on humans and a hundred million dollars or more."

However, there's a critical difference between CIGX and the companies that need FDA approval for their drugs. CIGX's product is approved already to be sold as a nutraceutical. All that means is that the FDA has deteremined it's safe on humans and it's made in a safe environment. More on this in a second.

CIGX also put out an 8k filing Tuesday at 11:02am discussing their partnership with Inventiv (VTIV). None of the articles on CIGX mentioned this 8k filing. Inventiv markets drugs, vitamins and nutraceuticals to doctors, supermarkets, pharmacies, etc. The 8k states:

[Inventiv]...will provide sales and marketing services to the Company relating to CigRx™. CigRx™ is a non-nicotine nutraceutical that is intended to temporarily reduce the desire to smoke.

Presumably this is the same compound that Roskamp is testing. In CIGX's profile they state they:
have a botanical, tobacco-based component designed to treat tobacco dependence and a range of neurological conditions, including Alzheimer’'s disease, Parkinson’'s disease, schizophrenia, and depression.

In other words, this is NOT a drug. Its a nutraceutical. So it can be easily tested in humans. Roskamp can give it to humans today. And, since a sales and marketing agreement has already been signed with one of the largest distributors out there there this product can be in the market in 2-3 months. Will it have "CURES ALZHEIMER's DISEASE!!" written all over it? No, of course not. But bottles of wine do not have "may cure heart disease" written on them either but people often swear by a glass of wine for this reason (and, of course, a few other reasons). Diitto for aspirin which generically sells billions of bottles a year for uses not specified on its container.

I'm also curious about this line in the Roskamp press release:

the compound is being explored further for its application to treat a variety of neurological conditions, including Alzheimer's.

What other neurological conditions are they testing? Two weeks ago an article came out in the Wall Street Journal suggesting that smokers often delay the onset of Parkinson's disease. Here's a similar article in Reuters. In this list of clinical trials that the Roskamp Institute participates in, Parkinson's is listed.

So what do we have? A company that could potentially test on humans and have a nutraceutical out in 3-12 months that is already deemed safe by the FDA and a third party clinic is already seeing independent validation that an off-label use might be to prevent or reduce the risk of Alzheimer's disease.

Again, MDVN lost $1bb in value in a day when they lost the ability to claim they have a product that cures Alzheimer's. JNJ lost $5bb in value. The size of the overall Alzheimer's market is estimated at over $15bb a year.

Tuesday saw a classic "sell the news" reaction on the stock. The Roskamp Institute basically upped their commitment to the idea that there might be a cure here. Not only have they invested in the company, but the premier researcher on Alzheimer's on the planet suggests that this might be the cure in their press release. Additionally, the 8K filing that came out late morning Tuesday affirms the sales and marketing relationship with Inventiv for the CigRx product, which I assume is the "botanical, tobacco-based component designed to treat ..." listed in CIGX's profile on Yahoo Finance.

This stock reminds me a little of Dendreon (DNDN). The company still does not have a product out to treat prostate cancer (waiting for all approvals) but investors never knew how to react to their news. The stock went from $4 to $20 back to $2.50, and is now up to $40. If the Alzheimer's market is truly a $15bb a year market and this company will have a product out there even distantly related to that market and will have a product out there before any other Pharma has a product, then we can easily see a $15-20 stock at some point.