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

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Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

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Happy Trading this week...
zigzagman

Market Decline Based On More Than Fear:

Comstock Partners, Inc.
May 20, 2010

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

Today marked a new phase in investors' understanding of the EU crisis. Although the Euro itself recovered a bit, investors realized that Europe's problems could spread to the U.S. and impede or stop its economic recovery. This would possibly mean that the 14-month market rebound in U.S. stocks may not have been justified. The possibility is more than just a fear, but a realistic assessment of a dire situation. Even if the EU and the Euro survive, all of the member governments, including the relatively stronger ones, would have to undertake severe spending cuts and pay down debt to rectify their budgets. These actions would lead to a long and serious economic slump that would most likely spread across the globe.

The crisis is also reminding investors that we have undergone two 50% plus market declines in the same decade and that the S&P 500 today closed at same level it first reached over 12 years ago in mid-March 1998. The two major declines are a reminder to traders of the benefits of getting out relatively early, while the lack of progress over 12 years make long-term investors wonder what they doing in the market. For those who didn't get out on time at the tops in early 2000 and late 2007, the bell is ringing for a third time.

The potential impact of the European crisis on the American economy and markets is not just Comstock's opinion. In testimony before a Congressional committee yesterday, Fed Governor Daniel Tarullo stated that sovereign debt problems in "peripheral" Europe could spill over and cause problems throughout Europe that, in turn, could be transmitted to global financial markets. This, he said, could cause banks and other financial institutions to pull back on lending as they did following the Lehman bankruptcy. "The result could be another source of risk to the U.S. recovery in an environment of still-fragile balance sheets and considerable slack".

The Fed's minutes of its last meeting, released this week, indicated that the economy was not doing quite as well as advertised, even before the impact of Europe's problems. Attributing the recent increases in consumer spending to temporary factors and a lowered savings rate, they concluded that it was unlikely that consumer spending would be the major factor in driving economic growth. They added that the housing market appeared to have flattened despite major government support and that both sales and starts had stalled at depressed levels. They also saw the possibility of increased foreclosures adding to already bloated inventories of vacant homes, threatening a downside risk to prices. The minutes mentioned that commercial real estate continued to fall as a result of deteriorating fundamentals, while bank lending was declining and credit remained tight.

Other recent economic releases were also not encouraging. The Mortgage Bankers Association (MBA) reported a record 4.63% of mortgages in foreclosure in the first quarter with combined foreclosures and delinquencies amounting to 14% of all mortgages. We note that this is before an expected surge of new defaults and foreclosures as a result of foreclosures being delayed due to attempted workouts and the pending increase of adjustable-rate mortgages due for reset in coming months. In addition applications for new mortgages for home purchases plunged in the week following the expiration of the latest home buyers' tax credit. It was also reported today that initial weekly claims for unemployment insurance unexpectedly jumped to 470,000. While one week doesn't necessarily mean anything, we note that claims have now been flat since year-end, indicating that the labor market still remains weak.

We would be remiss if we didn't mention increasing concern about China as a negative market factor. The Chinese housing market has been booming, and the authorities have been slowly tightening monetary policy. In the first quarter the nation reported its first trade deficit since 2004. If the Chinese economy slows down at the same time that Europe is dealing with its crisis the U.S. and global economy will stall. This is already being reflected in a sudden decline in commodity prices on anticipation of a drop in Chinese purchases. We'll have more on this topic in subsequent comments.

In our view the 14-month rally since March 2009 is over and a major decline is underway. The recent decline has been extreme in the short-term, and some sharp rallies are likely. However, we believe that none of these rallies will hold and that the eventual market bottom will be far lower than today's level.

Europe's Mounting Crisis: "We're on Life Support," Chris Whalen Says:

May 19, 2010 07:30am EDT by Heesun Wee

http://tinyurl.com/262m6oa

Despite a nearly $1 trillion rescue plan, concerns about Europe continue to haunt the financial markets. Late Tuesday, the euro slid to more than a 4-year low against the dollar, triggering another sell-off in U.S. stocks.

Beyond the obvious problems with Europe's "PIIGS", investors worldwide are nervously wondering how badly Europe's sovereign debt crisis is affecting the banking system -- both over there and here at home.

"In some ways European banks are worse than ours. They're certainly less transparent," says our guest Chris Whalen, managing director at Institutional Risk Analytics. "It's a strange time. And I think it talks to the basic lack of competitiveness, the lack of productivity really in Europe. And you also have the same problem in the U.S. We just have the flexibility of being able to print money."

So what does Europe's end game look like?...

"For Europe, basically they have two options: Individual countries can continue to borrow money until they can't. Then they hit the wall," says fellow guest John Mauldin, president of Millennium Wave Advisors and author of the Thoughts from the Frontline e-letter. "Or they can willingly throw themselves into a Depression by cutting their deficits dramatically."

For now, Whalen says politicians aren't willing to make the tough choices about spending and cutting deficits. Instead, "we're just managing bubbles here," he says. "To me we're on life support right now. We still haven't figured out as a society, both Europe and the US, how we fix these economies and make them go again," Whalen says.

Anxiously Watching the Euro...

With the global financial markets seemingly hanging on its every move, the fate of the euro is obviously a huge wild-card right now. But Mauldin or Whalen believe it's unlikely the EU will disintegrate and the euro disbanded, as Paul Volcker suggested last week, but both believe the currency is heading lower.

"I think the euro's going to parity. The pound's going to parity," Mauldin says. "And we're going to see the yen go to $100, then $125, then $150. Pretty soon we'll get a bid for $200 and $250," which will have huge implications for global trade.

"Not one of those countries [in Europe and the rest of Asia], not any of those businesses, and any of those exporters in those countries are going to be upset," Mauldin says. "They're going to be happy because they're going to be able to export with cheap currencies against us."

The Government as Identity Thieves:

Dr. Ron Paul Tuesday, May 18, 2010

http://www.thedailybell.com/1056/Ron-Paul-The-Government-as-Identity-Thieves.html

The spotlight remains on the Greek sovereign debt crisis as the riots continue. The terms of the Greek bailout from the IMF and Eurozone countries remain contentious with citizens on all sides. Europeans hate having their governments throw public money away as much as Americans do. The Greeks are not happy about having their taxes raised while their pensions and salaries are cut. Meanwhile, it is rumored by the Financial Times, AFP and others that Greece may spend more than it saves from austerity measures on arms deals with Germany, France and the US as a potential condition of receiving bailout funds. If true, it is certainly not unprecedented for the global military industrial complex to benefit from deals made by their friends in the central banking community. After all, war is the health of the state. The last thing big government proponents want is for peace to break out in the world.

This free flow of fiat money from around the globe to Greece will not really save Greece as much as it will grant a temporary reprieve to central bankers from the consequences of their mistakes. Sadly, this will come at the expense of the Greek people and taxpayers in Europe and America. Taxpayers are of no consequence to either European or American central bankers. Even the mere desire for complete information on what they are up to in our name is rebuffed, as we saw last week in the Senate with the failure of Senator Vitter's amendment containing my language to fully audit the fed. The hubris of powerful and secretive central bankers seems to know no bounds.

If someone incurred debts against you as an individual, without your knowledge or consent, you would call it identity theft. You would call your bank for a full accounting of the debts incurred in your name, and after some verification, those debts would be declared invalid and you would not be held responsible for them. Furthermore, if the culprit was found, they would be prosecuted and sent to jail.

Not so with governments and central banks. Governments that are supposed to be of the people and for the people routinely incur debts against the people. Some governments even borrow money to oppress their citizens, and then expect them to pay for their own oppression with interest. With a fiat monetary system, the sky is the limit for how much debt a government can place on the backs of the people.

We have reached the point in the United States where the debt our government has accumulated against us is mathematically impossible to pay off. Harder times, likely due to a wave of hyperinflation, will eventually find its way to our streets and I am fearful of how Americans will react. My hope is that we will come together peacefully and help each other, and that enough of us will be aware that the blame rests securely on the shoulders of the Federal Reserve and the special interests. They should not be looked to for salvation. They should not be given more power. Rather, they should be stripped of the powers that allowed them to create this mess in the first place.

Resistance to public transparency regarding public debts should be denounced in the strongest of terms, and the central bankers that incurred them should be seen as no better than common identity thieves.

The US Intelligentsia and Middle Class Are In the Firm Grip of Fear, Fraud and Denial:

Posted by Jesse at 11:27 AM May 16, 2010

http://jessescrossroadscafe.blogspot.com/2010/05/us-is-in-grip-of-fraud-and-denial.html

The lie is comfortable, an illusion easy to live with, familiar, and safe.

Writing from the 'disgraced profession' of economics, James K. Galbraith speaks of the unspoken, the many frauds and deceptions underlying the recent financial crisis centered in the US. Many will read this and shake their heads in agreement, but will be unable to take the next logical step and internalize the implications of the depth and breadth of the dishonesty that enabled it then, and continues to sustain it, even today. Galbraith is asking 'why' and framing a further inquiry into the consequences of this unwillingness to reform.

"Some appear to believe that "confidence in the banks" can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion."
It is easier to go with the flow, relax, rationalize, and be diverted and entertained by 'the show.' The truth may set you free, but before that it can make you feel very insecure and uncomfortable, especially when it requires challenging the 'official story' and policy decisions. Better to say nothing offensive to the oligarchs, and even occasionally to utter intelligent sounding condemnations of those who dare to question the very things you wonder about, and fear, in order to prove your loyalty and to reassure yourself that you are a right-thinking, practical individual. For the disparity that is unavoidably noticed between what is seen and what is said makes one uneasy, fearful that they are losing their bearings, if not reason. And the vested interests play on those fears. See Techniques of Propaganda

The consequences of 'extend and pretend' will be to worsen the final outcome, the day of reckoning.

"The initial deviation from the truth will be multiplied a thousandfold." -Aristotle
The banks must be restrained, the financial and political system reformed, and balance restored to the economy, before there can be any sustained recovery.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Why the 'Experts' Failed to See How Financial Fraud Collapsed the Economy:

By James K. Galbraith
May 16, 2010

Editor's Note: The following is the text of a James K. Galbraith's written statement to members of the Senate Judiciary Committee delivered this May.

Chairman Specter, Ranking Member Graham, Members of the Subcommittee, as a former member of the congressional staff it is a pleasure to submit this statement for your record.

I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including "rational expectations," "market discipline," and the "efficient markets hypothesis" led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur. Not all economists believed this – but most did.

Thus the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft- pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now. At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word "naughtiness." This was on the day that the SEC charged Goldman Sachs with fraud.

There are exceptions. A famous 1993 article entitled "Looting: Bankruptcy for Profit," by George Akerlof and Paul Romer, drew exceptionally on the experience of regulators who understood fraud. The criminologist-economist William K. Black of the University of Missouri-Kansas City is our leading systematic analyst of the relationship between financial crime and financial crisis. Black points out that accounting fraud is a sure thing when you can control the institution engaging in it: "the best way to rob a bank is to own one." The experience of the Savings and Loan crisis was of businesses taken over for the explicit purpose of stripping them, of bleeding them dry. This was established in court: there were over one thousand felony convictions in the wake of that debacle. Other useful chronicles of modern financial fraud include James Stewart's Den of Thieves on the Boesky-Milken era and Kurt Eichenwald's Conspiracy of Fools, on the Enron scandal. Yet a large gap between this history and formal analysis remains.

Formal analysis tells us that control frauds follow certain patterns. They grow rapidly, reporting high profitability, certified by top accounting firms. They pay exceedingly well. At the same time, they radically lower standards, building new businesses in markets previously considered too risky for honest business. In the financial sector, this takes the form of relaxed – no, gutted – underwriting, combined with the capacity to pass the bad penny to the greater fool. In California in the 1980s, Charles Keating realized that an S&L charter was a "license to steal." In the 2000s, sub-prime mortgage origination was much the same thing. Given a license to steal, thieves get busy. And because their performance seems so good, they quickly come to dominate their markets; the bad players driving out the good.

The complexity of the mortgage finance sector before the crisis highlights another characteristic marker of fraud. In the system that developed, the original mortgage documents lay buried – where they remain – in the records of the loan originators, many of them since defunct or taken over. Those records, if examined, would reveal the extent of missing documentation, of abusive practices, and of fraud. So far, we have only very limited evidence on this, notably a 2007 Fitch Ratings study of a very small sample of highly-rated RMBS, which found "fraud, abuse or missing documentation in virtually every file." An efforts a year ago by Representative Doggett to persuade Secretary Geithner to examine and report thoroughly on the extent of fraud in the underlying mortgage records received an epic run-around.

When sub-prime mortgages were bundled and securitized, the ratings agencies failed to examine the underlying loan quality. Instead they substituted statistical models, in order to generate ratings that would make the resulting RMBS acceptable to investors. When one assumes that prices will always rise, it follows that a loan secured by the asset can always be refinanced; therefore the actual condition of the borrower does not matter. That projection is, of course, only as good as the underlying assumption, but in this perversely-designed marketplace those who paid for ratings had no reason to care about the quality of assumptions. Meanwhile, mortgage originators now had a formula for extending loans to the worst borrowers they could find, secure that in this reverse Lake Wobegon no child would be deemed below average even though they all were. Credit quality collapsed because the system was designed for it to collapse.

A third element in the toxic brew was a simulacrum of "insurance," provided by the market in credit default swaps. These are doomsday instruments in a precise sense: they generate cash-flow for the issuer until the credit event occurs. If the event is large enough, the issuer then fails, at which point the government faces blackmail: it must either step in or the system will collapse. CDS spread the consequences of a housing-price downturn through the entire financial sector, across the globe. They also provided the means to short the market in residential mortgage-backed securities, so that the largest players could turn tail and bet against the instruments they had previously been selling, just before the house of cards crashed.

Latter-day financial economics is blind to all of this. It necessarily treats stocks, bonds, options, derivatives and so forth as securities whose properties can be accepted largely at face value, and quantified in terms of return and risk. That quantification permits the calculation of price, using standard formulae. But everything in the formulae depends on the instruments being as they are represented to be. For if they are not, then what formula could possibly apply?

An older strand of institutional economics understood that a security is a contract in law. It can only be as good as the legal system that stands behind it. Some fraud is inevitable, but in a functioning system it must be rare. It must be considered – and rightly – a minor problem. If fraud – or even the perception of fraud – comes to dominate the system, then there is no foundation for a market in the securities. They become trash. And more deeply, so do the institutions responsible for creating, rating and selling them. Including, so long as it fails to respond with appropriate force, the legal system itself.

Control frauds always fail in the end. But the failure of the firm does not mean the fraud fails: the perpetrators often walk away rich. At some point, this requires subverting, suborning or defeating the law. This is where crime and politics intersect. At its heart, therefore, the financial crisis was a breakdown in the rule of law in America.

Ask yourselves: is it possible for mortgage originators, ratings agencies, underwriters, insurers and supervising agencies NOT to have known that the system of housing finance had become infested with fraud? Every statistical indicator of fraudulent practice – growth and profitability – suggests otherwise. Every examination of the record so far suggests otherwise. The very language in use: "liars' loans," "ninja loans," "neutron loans," and "toxic waste," tells you that people knew. I have also heard the expression, "IBG,YBG;" the meaning of that bit of code was: "I'll be gone, you'll be gone."

If doubt remains, investigation into the internal communications of the firms and agencies in question can clear it up. Emails are revealing. The government already possesses critical documentary trails -- those of AIG, Fannie Mae and Freddie Mac, the Treasury Department and the Federal Reserve. Those documents should be investigated, in full, by competent authority and also released, as appropriate, to the public. For instance, did AIG knowingly issue CDS against instruments that Goldman had designed on behalf of Mr. John Paulson to fail? If so, why? Or again: Did Fannie Mae and Freddie Mac appreciate the poor quality of the RMBS they were acquiring? Did they do so under pressure from Mr. Henry Paulson? If so, did Secretary Paulson know? And if he did, why did he act as he did? In a recent paper, Thomas Ferguson and Robert Johnson argue that the "Paulson Put" was intended to delay an inevitable crisis past the election. Does the internal record support this view?

Let us suppose that the investigation that you are about to begin confirms the existence of pervasive fraud, involving millions of mortgages, thousands of appraisers, underwriters, analysts, and the executives of the companies in which they worked, as well as public officials who assisted by turning a Nelson's Eye. What is the appropriate response?

Some appear to believe that "confidence in the banks" can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.

In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case. Thank you.

James K. Galbraith is the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, and of a new preface to The Great Crash, 1929, by John Kenneth Galbraith. He teaches at The University of Texas at Austin.

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

Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

This video is viewed best in Full-Screen Mode...Click the four arrows in the bottom right corner...Press the Escape key on your keyboard to exit back to Normal Mode...

Happy Trading this week...
zigzagman

America's Ten Most Corrupt Capitalists:

Wall Street's captains of industry and top policymakers in Washington are often the same people. A lot of them get rich by playing for both teams.

http://www.alternet.org/news/146819?page=entire

The New World Order is Now Complete:

by John Galt May 10, 2010

http://johngaltfla.com/blog3/2010/05/10/the-new-world-order-is-now-complete-2/

It took them a long time. I was stupid not to realize the obvious fact. Here we are, finally, united in a new world order of happiness and a future so bright that I have to wear shades. For most people much like myself, we always thought it was the United States and the armed citizenry that stalled and prevented the establishment of this new order, both economic and political. Sadly us Americentric types focused on our nation as the center of the universe failed to see the big picture and I did not realize until tonight that it was not Presidents Bush and Obama that prevented the new order from taking hold. It was not the Tea Party, Republican Party or the Libertarian Party which obstructed the globalist regime. It was not Joe Redneck, Joe Six-Pack or Joe the Plumber that intimidated or slowed down the establishment of this order.

It was our friends in Europe.

And last night a shotgun wedding was performed, Miss America, meet your groom, the European Union.

The idea that the European Union needed $1 trillion to bail out Greece, Italy, Ireland, Portugal, and Spain is absurd. Even if all of that money was obtainable on the open markets or via fiat creation it does nothing to repair or restore the economic engine of hybrid Corporatist Statism, but does indicate the level of desperation that the powers in the West are willing to resort to in a last ditch effort to insure the expansion of and maintenance of their fortunes and power. Here we are, at the crux of another crisis and a “miracle” cure is found by creating more debt to service, not pay off, existing debt from various member nations who were resistant to the idea of a unified political structure. Ireland and the other PIIGS nations wanted no part of a unified Parliamentary structure for the EU with the ability to dictate law and settle on a series of Constitutionally mandated rights for the member nations. Yet here we are with those very nations who opposed such a regime surrendering their economic freedoms and in turn insuring such an animal will exist, a beast to America’s east.

Despite years of people calling others ‘tinfoil freaks’ of whom I have been guilty of that years and years ago, the conspiracy is not that nor has it been for two years now. The conspiracy has turned into a course of action where people are being deceived into believing that according to the leaders of the West, aka the United States and Europe, that there is no other choice if we wish to survive as a civilization. Common sense tells the informed citizen otherwise but the panic and hysteria created on an almost scheduled, regular basis, be it an oil spill in the Gulf of Mexico, financial crisis, war, or terrorist act keeps many citizens from understanding or realizing the activities being undertaken behind the scenes. How many people realize that the new financial reform package expands the powers of the Federal Reserve to the point of extra-Constitutional authorities not implied nor given to the Executive Branch as written within that damned piece of paper? How many people who run a small business now understand that starting in 2012 you have to give a 1099 to every vendor you purchase $600 or more from? How many citizens understand that Homeland Security is working with the Congress to create a standardized National Identification program under the guise of the Health Care legislation to provide the ability to monitor not just the consumption patterns of citizens but the transportation habits, domestic and international, of our citizens to enable further taxation due to the risks created by those who can afford to travel to and fro?

And that’s just the United States side of the equation. Once the European Parliament convenes when the dust settles and the last fire from the riots are extinguished, the Eurosheeple much like the Amerisheeple will begin to understand that gee, we really do have a lot in common and perhaps unifying our financial systems and legal systems would be a logical extension from where we are now. The fact that we just put their precious European Monetary Union into debt to the Federal Reserve via the currency swaps and the International Monetary Fund loan program does sort of entitle those who are in charge to demand concessions of the citizens to insure a guarantee of repayment and streamlining of operations now, doesn’t it?

The next wave of the now completed new order will be to unify financial and corporate regulatory regimes because we “have to” and thus with that logic our sovereign rights along with the individual participants within the EU will agree to do the same. Beyond that, the human rights campaigns masked by their Eurosocialist masters will demand we in turn surrender key freedoms and rights as provided by the Constitution to insure financial and corporate stability, thus leaving the American citizen with no voice because we will have none in this matter.

The end game arrived with little fanfare but as expected a warning shot across the bow of the world economies with the shock of last Thursday. The Untied States has a banking cartel which was already engaged to be married to their Eurosocialist brethren but the right trigger event was never created to insure that the “people” would cooperate in such an event. Americans, due to the demographic shift, will support any and all actions that guarantee their retirement accounts as large numbers of the Baby Boomer generation is more than happy to sell the rest of us out to insure a comfortable period of time from retirement to their death. The Eurosocialist want to protect their 32 hour work week with 12 weeks of vacation so they are willing to accept a more “diversified” society if the United States citizens are willing to pay for it, thus they will accept their new immigrants, their new laws, and their new compliance with a budding world council to manage their affairs because after all the “New World” is going to share in their pain.

Thus the table has been set. Elections are somewhat irrelevant in the United States after the 2010 mid-term election unless upwards of 50% of the incumbents are turned out at every level, be it dog catcher or Congressman. The path has been set upon not by a desperation to insure world peace, as many thought it would in the late 1970’s and early 1980’s, but instead a dying desire to make sure they can retire with their surround sound DVD player and golf every Thursday with Bob at the community country club. The Greatest Generation, the ones who fought and died during World War II and endured the pains of the Great Depression of the 1930’s have finally given way. The Sellout Generation, their spawn, will insure world peace and stability for a generation to come.

By enslaving us all to the whims of a cartel of corporatist Marxists hell bent on a twisted Fascist world domination.

More Investigations on Wall Street:

Things are Heating Up for the Banks...Wall Street Probe Widens:

http://seekingalpha.com/article/204854-more-investigations-on-wall-street?source=yahoo

by Susan Pulliam, Kara Scannell, Aaron Lucchetti, and Serena Ng,WSJ:

Federal prosecutors, working with securities regulators, are conducting a preliminary criminal probe into whether several major Wall Street banks misled investors about their roles in mortgage-bond deals, according to a person familiar with the matter.

The banks under early-stage criminal scrutiny—J.P. Morgan Chase & Co., Citigroup Inc., Deutsche Bank AG and UBS AG—have also received civil subpoenas from the Securities and Exchange Commission as part of a sweeping investigation of banks' selling and trading of mortgage-related deals... Under similar preliminary criminal scrutiny are Goldman Sachs Group Inc. and Morgan Stanley, as previously reported by The Wall Street Journal. ...

At issue is whether the Wall Street firms made proper representations to investors in marketing, selling and trading pools of mortgage bonds called collateralized debt obligations, or CDOs. ...

Prosecutors so far are simply gathering evidence. ... It's possible the probe could end with no charges being brought against any of the firms. ...

And:

Prosecutors Ask if 8 Banks Duped Rating Agencies, by Louise Story, NY Times:

The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities...

The investigation parallels federal inquiries into ... interactions between the banks and their clients who bought mortgage securities, this one expands the scope of scrutiny to the interplay between banks and the agencies that rate their securities. ... The inquiry ... suggests that ... the agencies may have been duped by one or more of ... Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch...

The companies that rated the mortgage deals are Standard & Poor’s, Fitch Ratings and Moody’s Investors Service. ... Mr. Cuomo’s investigation follows an article in The New York Times that described some of the techniques bankers used to get more positive evaluations from the rating agencies.

Mr. Cuomo is ... interested in the revolving door of employees of the rating agencies who were hired by bank mortgage desks to help create mortgage deals that got better ratings than they deserved... His ... focus is on information the investment banks provided to the rating agencies and whether the bankers knew the ratings were overly positive...

Edmund Andrews says financial reform legislation is not yet a done deal, and could still be watered down to appease banking interests:

Financial overhaul, perils ahead, by Edmund L. Andrews:

It’s tempting to think that financial regulatory reform is already a done deal in Congress... Don’t be fooled. It’s true that the Senate is likely to pass some kind of bill. Unfortunately, the legislation is still at risk of death by a thousand cuts: scores of seemingly anodyne amendments that, if passed, turn the bill into a cynical joke.

You know the drill..., some people – on Wall Street, or at the banks -- want to spare us from “unintended consequences.”

Today, Senate Democrats managed to vote down a major Republican push to gut portions of the bill to regulate derivatives, like the credit-default swaps that blew apart AIG. ...

Tomorrow, Republican Sam Brownback will push an amendment to exclude car dealers from oversight by the new Consumer Financial Protection Bureau. ...

But I would like to focus on a third imminent that seems drier than derivatives or car loans but is at least as important: federal pre-emption of state financial regulations. And this time, it's moderate Dems who are carrying water for the banks.

In the run-up to the mortgage meltdown, federal bank regulators fought hard to pre-empt any state efforts to crack down on shady bank practices. A number of states, like North Carolina and New York, were trying to crack down on abusive mortgage practices by subprime lenders. But many of the lenders were subsidiaries of national banks, and the Office of the Comptroller of the Currency declared that states had no right to touch them whatsoever. ...

The amendment to watch out for in the days ahead actually comes from a Democrat: Tom Carper of Delaware. Carper’s amendment would forbid state attorney generals from prosecuting banks that violate national consumer laws, much as the fed’s blocked Elliott Spitzer and Andrew Cuomo of New York from investigating racial and ethnic targeting by subprime lenders. It would also allow the Feds to override state consumer laws...

Don’t let it happen.

The bill needs to be made stronger, not weaker, so let's hope that amendments to water down the bill's impact continue to lack the necessary support.

On a broader note, there seems to be a shift in the narrative about what caused the crisis. Fraud, deception, and other questionable if not illegal behaviors are beginning to take on a larger role in the story of what happened to bring about the problems in the financial sector. The turning point was, of course, the investigation of Goldman (GS), and the investigations have been growing more numerous ever since.

The shift in attitude has probably helped to stave off challenges designed to weaken the legislation, and if a smoking gun turns up in one of the investigations like those described above, that would likely make it even harder for banks get the political support needed to water down the legislation. But I'm not counting on that happening, and as noted above, the deal isn't done yet. It's still possible for the legislation to be weakened, and as pointed out above there's no shortage of attempts to do just that.

Here Is Why the Fed Cannot Simply Continue to Inflate Its Way Out of Every Financial Crisis That It Creates:

The return on each new dollar of US debt is plummeting to new lows according to figures from the Federal Reserve.

http://jessescrossroadscafe.blogspot.com/2010/05/here-is-why-fed-cannot-simply-inflate.html

The chart below is from the essay, Not Just Another Greek Tragedy by Cornerstone.



I have been watching this chart for the past ten years, as part of the dynamic of the sustainability of the bond and the dollar as the limiting factor on the Fed's ability to expand the money supply.

The ability to expand debt is contingent on the ability to service debt. If the cost of the debt rises over the net income of the country's capital investment, or even gets close to it, the currency issuing entity is trapped in a debt spiral to default without a radical reform.

In other words, if each new dollar of debt costs ten percent in interest, largely paid to external entities, and it generates less than ten cents in domestic product, it is a difficult task to grow your way out of that debt without a default or dramatic restructuring.

So we are not quite there yet. But we are getting rather close on an historic basis. Without the implicit subsidy of the dollar as the world's reserve currency it would be much closer.

As it is now, this chart indicates that stagflation at least, rather than a hyperinflation, is in the cards for the US. But the trend is not promising, and the lack of meaningful reform is devastating.

A 'soft default' through inflation is the choice of those countries that have the latitude to inflate their currencies. Greece, being part of the European Monetary Union, did not. The US is not so constrained, especially since it owns the world's reserve currency.

The economy is out of balance, heavily weighted to a service sector, especially the financial sector which creates no new wealth, but merely transforms and transfers it. With stagnation in the median wage, and an historic imbalance in income distribution skewed to the top few percent, with the banks levying de facto taxation and inefficiency on the economy as a function of that income transfer, there should be little wonder that the growth of real GDP is sluggish in relation to new debt.

Or as Joe Klein so colorfully phrased it, the elite have been strip-mining the middle class in America for the past thirty years.

Along with the 'efficient market hypothesis,' trickle-down economics is also a fallacy. This is why the stimulus program being conducted by the Federal Reserve, in an egregious expansion of its authority to conduct monetary policy, in subsidies and transfer payments to Wall Street is not working to stimulate the real economy. It merely inflates the bonuses of the few, and extends the unsustainable.

So obviously one might say, "The Banks must be restrained, and the financial system reform, and the economy brought back into balance, before there can be any sustained recovery.

Did a Big Universa Hedge Fund Bet Help Trigger 'Black Swan' Stock Swoon?

By Scott Patterson And Tom Lauricella

http://online.wsj.com/article/SB10001424052748704879704575236771699461084.html

Shortly after 2:15 p.m. Eastern time on Thursday, hedge fund Universa Investments LP placed a big bet in the Chicago options trading pits that stocks would continue their sharp declines.

On any other day, this $7.5 million trade for 50,000 options contracts might have briefly hurt stock prices, though not caused much of a ripple. But coming on a day when all varieties of financial markets were deeply unsettled, the trade may have played a key role in the stock-market collapse just 20 minutes later.

The trade by Universa, a hedge fund advised by Nassim Taleb, author of "Black Swan: The Impact of the Highly Improbable," led traders on the other side of the transaction—including Barclays Capital, the brokerage arm of British bank Barclays PLC—to do their own selling to offset some of the risk, according to traders in Chicago.

Then, as the market fell, those declines are likely to have forced even more "hedging" sales, creating a tsunami of pressure that spread to nearly all parts of the market.

The tidal wave of selling fed into a market already on edge about the economy in Europe. As the selling spread, a blast of orders appears to have jarred the flow of data going into brokerage firms, such as Barclays Capital, according to people familiar with the matter.

Exchanges, in turn, were clogged by huge volumes of offers to buy and sell stocks, say traders and exchange executives. Even before some individual stocks collapsed to just a penny a share, data from the NYSE Euronext's electronic Arca exchange started to appear questionable, say traders.

In the disarray, some huge superfast-trading hedge funds that now provide much of the liquidity for the stock market pulled to the sidelines. The working theory among traders and others involved in the exchange meltdown is that the "Black Swan"-linked fund may have contributed to a "Black Swan" moment, a rare, unforeseen event that can have devastating consequences.

"Universa alone couldn't have caused the meltdown," said Mark Spitznagel, Universa's founder. "We had reached a critical point in the market, and it was poised to collapse." Barclays Capital declined to comment.

As more details of Thursday's collapse become clear, there is less evidence to suggest a "fat finger" data-entry error caused the collapse. Instead, the picture is one of a rare confluence of events, some linked, some unrelated, that exposed weaknesses in the stock market large and small. Within five minutes, the Dow Jones Industrial Average had lost 700 points as trading seized up in individual stocks such as Procter & Gamble and even exchange-traded mutual funds.

"It did point out that there is a structural flaw," said Gus Sauter, chief investment officer at Vanguard Group. "We have to think through how you preserve the immediacy and yet preserve the liquidity."

The episode highlights a bigger question about the stock market. In recent years, the market has grown exponentially faster and more diverse. Stock trading's main venue is no longer the New York Stock Exchange but rather computer servers run by companies as far afield as Austin, Texas; Kansas City, Mo.; and Red Bank, N.J.

This diversity has made stock-trading cheaper, a plus for both institutional and individual investors. It has also made it more unruly and difficult to ensure an orderly market. Today that responsibility falls largely on a group of high-frequency traders who make up an estimated two-thirds of stock-market volume. These for-profit hedge funds look out for their own investors' interests and not those of investors in the stocks they trade.

Hours before the panic began, there were signs that Thursday wasn't shaping up to be a humdrum day. By 11 a.m., when the Dow was down only about 60 points, selling volume was unusually heavy. One measure of selling—the percentage of stocks falling without first moving upward—was at its highest since the day the market reopened after the Sept. 11 terror attacks, according to Barclays.

By 2 p.m., financial markets of just about every sort were under significant strain. In Europe, the spillover from the Greek debt crisis led to a huge drop in the euro against the dollar and the Japanese yen, as well as a broad bond-market decline. European banks were charging each other higher interest rates to borrow money.

Some 2,800 miles away from Wall Street, in Santa Monica, Calif., Universa placed its trade.

The trade wasn't out of character for Universa, which has about $6 billion under management. Mr. Taleb, who is an adviser to the firm and an investor, gained fame for "The Black Swan," a book that suggested unlikely events in the financial markets are far more likely than most investors believe.

Universa frequently purchases options contracts that will pay off if the market makes a sharp move lower. It posted big gains in the market selloff of late 2008 and launched a fund last year designed to benefit if inflation surges.

Through the trading desks at Barclays, Universa bought 50,000 options contracts, according to people familiar with the matter. The contracts would pay off about $4 billion should the Standard & Poor's 500-stock index fall to 800 in June. It was at 1145 points at the time of the trade.

Back across the country in Chicago, the big trade appeared to have had an immediate ripple in the markets. The traders on the other side of the Universa trade were essentially betting stocks wouldn't post big losses.

But to minimize the risk of losing money, they in turn needed to sell, according to traders.

The more the market fell, the more the traders at places like Barclays had to sell to protect their own positions. This, along with likely dozens of other trades across the market, led to a cascade of selling in the futures markets.

As the stock-trading volume soared, data systems across the stock market began to get clogged. At Barclays Capital, a market data feed that delivers to the firm data on "buy" and "sell" orders went down, although a backup system immediately went online without any impact to the firm.

As the turmoil unfolded, every second saw some 300,000 pieces of stock information—stock prices moves, trades—pour into Barclays's system. A normal peak is some 60,000 ticks a second, says Barclays Capital's head of electronic trading sales, Brian Fagen, who was monitoring the chaos in the market on his screens.

Large hedge funds were juggling huge positions as volume spiked. Two Sigma Investments LLC, a New York hedge-fund manager that engages in complex trading strategies, saw its highest-volume day since launching in 2001, according to a person familiar with the matter.

By 2:37 p.m., the overload seemed to have taken its toll on the NYSE's Arca electronic-trading system. At that point, its rival, the Nasdaq, owned by Nasdaq OMX Group Inc., detected what it felt was questionable information in the data. It sent out a message saying it would no longer route quotes to Arca.

This step, known as declaring "self help," doesn't happen often among the major exchanges. But in the coming minutes, the BATS exchange also stopped automatically routing orders to Arca.

For a crucial set of players—high-frequency-trading hedge funds—all this turmoil was becoming too risky to handle. One fear that would prove all too real was that in the extreme swings, some, but not all, trades would later be canceled, leaving them on the hook for unwanted positions.

Manoj Narang, whose Tradeworx Inc. firm runs a high-frequency trading operation in Red Bank, N.J., began to worry the extreme volatility could lead to painful losses in his fund.

At about 2:40, he and a small team of traders scrambled to close the positions held by the high-speed fund, which trades rapidly between stock indexes and the individual stocks in the index.

Normally, it takes about a fraction of a second to unwind the trades because of the high-powered computers Mr. Narang uses. But as the market plunged, it took about two minutes—an eternity in today's computer-driven market. Tradebot Systems Inc, a large high-frequency firm based in Kansas City, Mo., was also seeing chaotic action in many of the securities it traded and decided to pull back from the market.

With the high-frequency funds either selling or pulling out of the market, Wall Street brokerage firms pulling back and the NYSE temporarily halting trading on some stocks, offers to buy stocks vanished from underneath the market. Normally there can be hundreds of offers to buy the iShares Russell 1000 Growth Index exchange-traded fund, but at 2:46 p.m., there were just four bids north of $14 for a fund that had been trading at $51 minutes earlier, according to data reviewed by The Wall Street Journal.

Around 3 p.m., the selling pressure abated. Just as swiftly as the market fell, it recovered ground. One factor behind the swift recovery, traders say, were funds that use computers and formulas to sniff out bargains in the market. These funds swooped in on hundreds of cheap stocks, helping push the market higher.

High Frequency Terrorism: How the Big Banks and Federal Reserve Maintained Their Death Grip Over the United States:

By David DeGraw & Max Keiser, AmpedStatus Report
Posted on Monday, May 10th, 2010 at 1:11 am

http://ampedstatus.com/high-frequency-terrorism-how-the-big-banks-and-federal-reserve-maintained-their-death-grip-over-the-united-states

The following article is the third-part of a six-part report titled: “The Financial Oligarchy Reigns: Democracy’s Death Spiral From Greece to the United States.” The full report is available here:

http://ampedstatus.com/the-financial-oligarchy-reigns-democracys-death-spiral-from-greece-to-the-united-states

III: Financial Terrorism Operations: 9/29/08 & 5/6/10

In the aftermath of Goldman Sachs’ public flogging before the world in Congress, and while under investigation, on the very day that Congress was voting on the “break up the too big to fail banks” amendment and cutting behind the scenes deals to gut the audit of the Federal Reserve, the stock market had its greatest sudden drop in history, plummeting 700 points in ten minutes - shades of September 29, 2008 all over again.

If you recall, back in September ‘08, as Congress was voting down the first bailout, the big banks made the market plunge a record 778 points in one day, fear and panic then led Congress to pass the bailout. Trillions of our tax dollars, the money that we desperately need to keep our society functioning over the long run, then went out the window and into the pockets of the very people who caused the crash.

What happened on September 29, 2008 will go down in history as one of the greatest acts of terrorism ever.

9/29/08 proved that when you have so much power concentrated in the hands of a few, you can manipulate a computer algorithm and make the market and economy go which ever way you want it to go. So on 5/6/10, just as the power of the big banks was threatened again on the floor of the Senate and a deal on auditing the Federal Reserve was being negotiated, in came a sudden and unprecedented ten-minute 700 point market drop. A precision-guided High Frequency Trading (HFT) attack to show Congress who’s boss.

If you think the massive sudden drop happened because one lowly trader hit one wrong button, if you actually believe that the entire stock market can plunge because of one mistaken key stroke by a low level trader, you are stunningly naïve. I hate to burst your bubble, but this was a direct attack.

In a market where 70% of all trades are executed by computer algorithms via High Frequency Trading (HFT), Goldman Sachs has the power to make the market crash or rise at will. In fact, Goldman has a major Weapon of Mass Destruction in its Program Trading monopoly of the New York Stock Exchange, as Tyler Durden described on Zero Hedge:

“Goldman’s dominance of the NYSE’s Program Trading platform, where in addition to recent entrant GETCO, it has been to date an explicit monopolist of the so-called Supplementary Liquidity Provider program, a role which affords the company greater liquidity rebates for, well providing liquidity, and generating who knows what other possible front market-looking, flow-prop integration benefits. Yesterday [5/6/10], Goldman’s SLP function was non-existent. One wonders - was the Goldman SLP team in fact liquidity taking, or to put it bluntly, among the main reasons for the market collapse….

… here is the most recently disclosed NYSE program trading data….

What is notable here is that of the 1.4 billion in principal shares, or shares traded for the firm’s own account, Goldman was the top trader by a margin of over 100% compared to the second biggest program trader.

We have long claimed that Goldman is the de facto monopolist of the NYSE’s program trading platform. As such, it is certainly the case that Goldman was instrumental in either a) precipitating yesterday’s crash or b) not providing the critical liquidity which it is required to do, when the time came. There are no other options.”

For further investigation, I turned to Max Keiser, who has written and authored similar Program Trading and HFT computer algorithms. I asked him if he thought this was an attack, here is what he had to say:

“May 6th was an unequivocal act of domestic financial terrorism in America. A day that will live in infamy.

To scare the lawmakers, themselves large owners of the very banks and stocks that they are supposed to be regulating, a financial Weapon of Mass Destruction was put to their head and they acquiesced.

As the inventor of the continuous double-auction, market-making technology (VST tech. US pat. no. 5950176) that is referenced 132 times by program trading and HFT patents since 1996, I can tell you that Goldman, JP Morgan and the gang simply pulled the ‘buys’ from their computer trading programs and manufactured a crash. And when the coast was clear, and it was clear the politicians were not going to vote for anything that would break up the ‘too big to fail’ banks; all the ’sells’ were pulled from the computers and the market roared back.

This is a Manchurian Candidate market where program trading bots start the ball rolling in whatever direction Wall St. wants the market to go - and then hundreds of thousands of day-traders watching Cramer on CNBC jump on the momentum bandwagon and commit the crime for the Wall St. financial terrorists, who then say, ‘It wasn’t us, it was ‘the market!’”

On Friday, the next day, after the “break up the too big to fail banks” amendment was soundly defeated by a 61 to 33 margin in Senate and a deal was struck to eliminate key provisions from the audit of the Federal Reserve bill, Goldman was meeting with the SEC to work out a settlement in their case against them. Once again, Goldman proves that crime pays. Welcome to the New Mafia World Order.

Other than the two major operations carried out on 9/29/08 and 5/6/10, we must also recall a smaller attack on January 21st and 22nd of 2010, when Obama had a press conference and came out in favor of the Volcker Rule, which would have limited these HFT and “proprietary trading” schemes. At that time, the market dropped 430 points. Soon after this attack, all follow up talk on the Volcker Rule faded away and this reform has not been seriously addressed by Obama since then.

The bottom line, the United States has been taken over by a financial terrorism network. Let’s face it, we are all hostages of these financial terrorists and our puppet politicians rather be in on the scam than defend our interests. If these terrorists don’t get their way at all times, they have the power to throw their tremendous weight around and turn millions of lives upside down in a matter of minutes, and as they have shown they have no hesitation in executing that power, no matter how many millions of lives they destroy.

They set off this crisis with a wave of bombings in their initial Economic Shock and Awe campaign two years ago, resulting in massive devastation. Just to name a few of their greatest hits within the U.S.:

* 50 million Americans are now living in poverty, which is the highest poverty rate in the industrialized world;

* 30 million Americans are in need of work;

* Five million American families foreclosed upon, 15 million expected by 2014;

* 50% of US children will now use a food stamp during childhood;

* Soaring budget deficits in states across the country and a record high national debt, with austerity measures on the way;

* Record-breaking profits and bonuses for themselves.

Like other terrorists, they don’t use IEDs, they use CDOs. They don’t use precision laser-guided missiles, they use High Frequency Trading. They don’t have WMDs, they have derivatives. Let’s also not forget that they have toxic assets and dirty debt bombs just waiting to be deployed upon the American public once there is any true growth in the economy. Their nuclear arsenal includes hundreds of Trillions in secretive derivatives and hidden debt bombs, just ticking away, waiting to be set off… at their whim...

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

http://www.viddler.com/explore/zigzagman/videos/19/

Here is the end of the week Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

Happy Trading this week...
zigzagman

"Your Big, Fat-Fingered Debacle" (Collapse):

By Randall W. Forsyth

http://online.barrons.com/article/SB127320706419088061.html?mod=googlenews_barrons

YOU KNOW IT'S A BEAR MARKET when the Dow Jones Industrials end down 348 points and traders breathe a sigh of relief.

The collapse is blamed on computers, but that misses the point. Debt deflation is unabated by the ECB.

At its low Thursday, the Dow was gripped with a thousand points of fright as the result of an apparent "fat finger" trade that, according to numerous stories circulating around the market, entered a sell order for billions when it was supposed to be for millions.

The stock in question supposedly was Procter & Gamble (PG), which was trading steadily around 62 until it collapsed to as low as 39.37 in a flash before rebounding almost immediately and closed at 60.75, down 1.41 or 2.27%, which is bad enough. But consider Accenture (ACN), which went from over $40 to a mere penny in the same flash before recovering to 41.09, for a loss on the session of 1.08 or 2.56%.

Some of these errant trades will be cancelled. Trades that were more than 60% above or below levels at 2:40 PM EDT will be cancelled, Nasdaq said late Thursday. Yet that doesn't compensate all that was lost in this fiasco.

I'm not talking about the $1 trillion of market value that evaporated in the past three sessions. That's based on the Wilshire 5000, the broadest measure of the U.S. stock market, which reflects closing prices.

But ordinary stock investors were directly affected by the mindless selling of stocks by electronic, high-frequency trading algorithms that reacted to the sudden plunge in the market.

Limit orders to buy stocks at below-market prices were executed, which got bargains for buyers. Conversely, sellers got correspondingly lower prices.

For instance, an investor who might have placed a stop-limit order (which gets triggered if a stock drops to a certain price to limit losses) would have had that order executed unexpectedly. But it wouldn't be because of a fundamental market drop but a computer gone wild. (I know, because it happened to me.)

Thursday's thousand-Dow point fiasco is just another black eye for Wall Street at a time it is already under attack.

After Congressional hearings with bewildering references to CDS, CDO and all manner of mind-bending market arcana, the bizarre swings seen on a day such as this only confirms Washington's and Middle America's worst suspicions about Wall Street.

Instead of being a provider of capital to finance growth of the great American economy, days like this make Wall Street seem as if it is nothing but a casino. And as with all casinos, it seems one that is designed to separate the customer from his money.

Yet even after the near-thousand-point drop was reversed, the major U.S. averages were still down more than 3% and holders of equities $1 trillion poorer than three days earlier. Something more than fat fingers is afoot.

"Those losses, led by financials, were no glitch, but a clear reflection of the fact that sovereign debt woes due to indiscriminate Keynesian deficit spending is outrunning tepid global recovery and threatening the next financial blowout," asserts Uwe Parpart, Cantor Fitzgerald's chief economist and strategist for Asia.

"A machine or bad entry may have been the catalyst, but the scene was set for a big fall," he continues. "The fact that gold prices jumped and barely came back down; that the euro dropped one big figure [that is, more than a full cent against the dollar] and stayed down; that oil tanked -- and all that accompanied by a sharp unwinding of carry trades…amply proves the point."

The unwinding of carry trades was evident in a sharp drop in the Australian dollar's cross-rate against the yen, Parpart points out. Carry trades involve buying high-yielding assets, such as those in Aussie dollars, with borrowings in low-yielding currencies, in this case Japanese yen.

It could also be in dollars. And the unwinding of carry trades means buying greenbacks to repay those borrowings. As a result, the dollar soared further against the euro, with the common currency plunging below $1.27 amid continuing protests in Greece and the European Central Bank's stand-pat policy position.

Not surprisingly, the flight to quality accelerated, with Treasuries soaring again and yields plunging to 2010 lows. The benchmark 10-year note yield ended at 3.40%, down sharply from 4% a month ago. The popular way to play long Treasuries, the iShares Barclays 20+ Year Treasury Bond exchange-traded fund (ticker: TLT) gained over 3% Thursday and is up over 10% from a month ago.

But corporate credits decoupled from Treasuries amid continued stresses in the money markets, especially the European interbank markets. The iShares iBoxx $ Invesment Grade Corporate Bond ETF (LQD) fell 1.65% while Treasuries were soaring. Liquidity in the corporate bond market is diminishing, Loomis Sayles' veteran bond manager Dan Fuss said at a mutual-fund conference Thursday.

Beyond the monster, momentary glitches that sent the equity markets into freefall momentarily, it is the reemergence of the credit stresses that were at the core of the 2008 meltdown that is important.

In 2008, that was the result of funding difficulties by institutions left on the hook for errant credit decisions. In the case of Lehman Brothers, the U.S. authorities claimed they didn't have the power to step in to stop the panic resulting from its collapse. When it came to AIG, they found the necessary authority to stanch the bleeding.

Ultimately, the federal government came to the fore with the much-criticized TARP, or Troubled Assets Relief Program. The Federal Reserve followed with its massive purchases of Treasury, agency and mortgage-backed securities totaling $1.75 trillion. The recovery in the markets roughly dates from the March 2009 Federal Open Market Committee when that program, commonly referred to as quantitative easing.

Now, with civil unrest in Greece instead of the collapse of U.S. financial institutions, the ECB Thursday declined to take the same decisive actions that the Fed took in March of last year. For better or worse, the ECB refused to step in to monetize the debts of the beleaguered nations even as civil unrest continued in the Streets of Athens.

The aggressive actions to counter the credit crises in the U.S. and the U.K. have been roundly criticized on the Right and the Left of both countries.

British authorities worried about civil unrest had they let Northern Rock fail. The run on banks and especially money-market funds could have been destabilizing in the U.S. Moreover, the steps taken to counter the crisis by the outgoing Bush administrations were continued and extended by the Obama administration.

The lesson is this goes far beyond some computer glitches, fat fingers or other technical difficulties. And the Greek crisis is no more just a European problem than the subprime mortgage collapse was solely an American problem. In sum, to think that this is only a momentary downdraft is a delusion.

High-Speed Trading Glitch Costs Investors Billions:

On Thursday May 6, 2010, 9:22 pm EDT

http://tinyurl.com/2b43wk8

The glitch that sent markets tumbling Thursday was years in the making, driven by the rise of computers that transformed stock trading more in the last 20 years than in the previous 200.

The old system of floor traders matching buyers and sellers has been replaced by machines that process trades automatically, speeding the flow of buy and sell orders but also sometimes facilitating the kind of unexplained volatility that roiled markets Thursday.

“We have a market that responds in milliseconds, but the humans monitoring respond in minutes, and unfortunately billions of dollars of damage can occur in the meantime,” said James Angel, a professor of finance at Georgetown University’s McDonough School of Business.

In recent years, what is known as high-frequency trading — rapid computerized buying and selling — has taken off and now accounts for 50 to 75 percent of daily trading volume. At the same time, new electronic exchanges have taken over much of the volume that used to be handled by the New York Stock Exchange.

In fact, more than 60 percent of trading in stocks listed on the New York Stock Exchange takes place on other, computerized exchanges.

Many questions were left unanswered even hours after the end of the trading day. Who or what was the culprit? Why did markets spin out of control so rapidly? What needs to be done to prevent this from happening again?

The Nasdaq exchange said it would cancel trades that moved shares more than 60 percent up or down at 2:40 p.m., when stocks like Accenture plummeted to a penny a share, for seemingly no reason. Exelon, the utility operator, fell to a hundredth of a penny, from $44.

Procter & Gamble, a big component of the Dow Jones industrial average, dived 37 percent for a brief time before rebounding. The move by Procter alone pushed down the Dow by more than 150 points, providing cause for a broad alarm among investors, followed by panicked selling.

The Securities and Exchange Commission and the Commodity Futures Trading Commission said they were examining the cause of the unusual trading activity.

Mary Schapiro, the chief of the S.E.C., and Gary Gensler, the head of the C.F.T.C., held conference calls with overseers of the exchanges who were reviewing trading tapes from the day.

One official said they identified “a huge, anomalous, unexplained surge in selling, it looks like in Chicago,” at about 2:45 p.m. The source remained unknown, but that jolt apparently set off trading based on computer algorithms, which in turn rippled across all indexes and spiraled out of control.

How the markets managed to snap back remained a question Thursday night.

The near-instantaneous swings left brokers dumbfounded. Dermott W. Clancy, who runs a New York Stock Exchange broker, said Thursday was one of the five worst days he has seen in 24 years in the business. When the market dropped across all indexes in a matter of minutes, customers were calling him nonstop.

“They’re calling saying ‘Is there something I’m missing? Is there somebody valuing these securities at this level? Is there some news in the marketplace I’m not aware of?’ ” he said.

The answer — that it all started with an apparent error — infuriated Mr. Clancy. “There are so many things wrong with what happened today,” he said. “The market was never down one thousand points. Procter & Gamble should never have traded at $39. But a lot of people lost money as if the prices were meant to drop. This is an injustice to the public.”

The whole trading system, Mr. Clancy said, went into what brokers call “slow mode.” When the large sell order came in, the market makers for each of those stocks were overwhelmed trying to sell that order and they could not take other orders. It was sort of like a traffic jam on one highway that spread to create traffic jams everywhere.

Suddenly, traders started to distrust what they were seeing.

“There was no pricing mechanism,” Mr. Clancy said. “There was nothing. No one knew what anything was worth. You didn’t know where to buy a stock or sell a stock. You didn’t know if the market was down $500 or $1,000.”

Ten Ways the American Economy Is Built on Fraud:

This summary is not available. Please click here to view the post.

Stocks Slide As New Doubts About Greece Aid Emerge:

Stocks in US, Europe slump as fears of debt contagion from Greece worsen...

http://finance.yahoo.com/news/Stocks-slide-as-new-doubts-apf-2098108080.html?x=0&sec=topStories&pos=main&asset=&ccode=

Stephen Bernard and Tim Paradis, AP Business Writers, On Tuesday May 4, 2010, 11:40 am

NEW YORK (AP) -- Stocks plunged around the world Tuesday as fears spread that Europe's attempt to contain Greece's debt crisis would fail. The dollar spiked against the embattled euro, sending prices for oil and other commodities sharply lower.

The Dow Jones industrial average fell about 250 points, erasing its 143-point gain from Monday. The Dow and broader indexes each fell more than 2 percent. Treasury prices rose on increased demand for safety investments.

Stocks have seesawed sharply in the past week as Europe's efforts to agree on a bailout package for Greece proceeded in fits and starts. An agreement finally came together over the weekend, but its ballooning size of $144 billion has investors worried that Europe would have an even tougher time assembling an aid package if a larger country such as Spain or Portugal were to get in trouble.

Meanwhile protests erupted throughout Greece against the spending cuts the country has promised to make in order to receive the bailout loans. A general strike has been called for Wednesday. Greece agreed on Sunday to slash public spending by $40 billion to secure the loans.

While Greece's economy is relatively small, investors worry that other cash-strapped European governments could follow Greece into asking for emergency loans. Markets have been increasingly skeptical that Europe can act on its own restore the credibility of its shared currency, the euro.

"Everybody is worried about who is going to be next," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York.

The euro again fell against the dollar as traders turned away from the currency, which is used by 16 European Union countries including Greece. The euro hit its lowest level in a year. Investors have punished the euro over the past few months over doubts that Europe would be able to enforce fiscal discipline in Greece and other weak countries in the region in order to protect the euro.

The rising dollar is a negative for U.S. investors since it would cut into profits for U.S. companies that heavily rely on foreign operations. When the dollar is up, overseas profits translate into less money. The strong dollar also sends prices for basic materials like oil higher, which hurts manufacturing companies.

In late morning trading, the Dow fell 255.60, or 2.3 percent, to 10,896.23. It is the Dow's fifth move of more than 100 points in the past six days. The Dow jumped 143 points Monday after sliding 159 on Friday.

The Standard & Poor's 500 index fell 29.83, or 2.5 percent, to 1,172.43. The Nasdaq composite index fell 80.33, or 3.2 percent, to 2,418.41.

Investors rushed to safety holdings like Treasurys, pushing down yields. The yield on the benchmark 10-year Treasury note fell to 3.62 percent from 3.69 percent late Monday.

The Chicago Board Options Exchange's Volatility Index, which is known as the market's fear gauge, soared 21 percent. That is a signal that more investors are betting on big drops in the market.

The dollar rose against other major currencies, especially the euro. The euro sank as low as $1.3038 in New York, its weakest point since April 2009. It was worth $1.3212 late Monday and had traded as high as $1.51 last November, before the extent of Greece's debt crunch had become apparent.

Crude oil fell to $2.70 to $83.49 per barrel on the New York Mercantile Exchange.

Stronger economic reports were of little help to stocks.

The Commerce Department said orders to U.S. factories rose 1.3 percent in March. Analysts expected a drop. The National Association of Realtors said its index of sales agreements for previously occupied homes rose a stronger-than-expected 5.3 percent in March.

About six stocks fell for every one that rose on the New York Stock Exchange, where volume came to 400 million shares compared with 302 million traded at the same point Monday.

The Russell 2000 index of smaller companies fell 20.06, or 2.7 percent, to 712.76.

In afternoon trading, Britain's FTSE 100 fell 1.8 percent, Germany's DAX index dropped 2.5 percent, and France's CAC-40 tumbled 3.5 percent.

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

Here is the end of the week Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

Happy Trading this week...
zigzagman

$POZN Gets FDA Approval for Pozen Inc.'s Pain Drug - Vimovo:

POZN - US FDA OK's AstraZeneca, Pozen Inc.'s Pain Drug:

Fri Apr 30, 2010 5:19pm EDT

http://www.reuters.com/article/idCNN3015546220100430?rpc=44

* Agency clears drug for U.S. market

* Vimovo includes naproxen and Nexium ingredient

* Pozen shares up more than 21 percent after-hours

POZN Conference Call link: http://biz.yahoo.com/cc/5/113585.html

WASHINGTON, April 30 (Reuters) - The U.S. Food and Drug Administration has approved AstraZeneca Plc (AZN.L) and Pozen Inc's (POZN.O) pain drug Vimovo, an agency spokeswoman told Reuters on Friday.

Vimovo is a fixed-dose combination of the anti-inflammatory drug naproxen and an immediate release version of esomeprazole, the active ingredient in AstraZeneca's acid reflux treatment Nexium.

Shares of Pozen were up more than 21 percent, or about $2.30, in after-hours trading on Friday, trading at $13.15, after earlier closing at $10.85. (Reporting by Susan Heavey; additional reporting by Ben Hirschler in London and Vidya Loganathan in Bangalore; editing by Carol Bishopric)

POZN is currently halted...Per the Nasdaq.com website:

http://www.nasdaqtrader.com/Trader.aspx?id=TradeHalts

No time is given for resumption of trading...

There was a huge Bear Raid at 12:37 this afternoon, as the MM's took out all of the stop-loss limit orders people had in place:



POZN After-Hours Chart shows it closed at $13.15 when it was halted for "news pending":

First Quarter 2010 GDP Advance: by Karl Denninger...

Friday, April 30. 2010

http://market-ticker.denninger.net/archives/2010/04/30.html

So the data is out....

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6 percent.

Well, that's not what the previous quarter was, but it's also no surprise.

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports.

The inventory cycle is about done, residential fixed investment hasn't turned around at all and in fact is still declining, and state and local government spending is down - they're out of money!

There are some interesting data points inside the release. Of note:

* Durables were up big - 11.3%. Most of this is probably improvement in vehicles, if the reports from the first quarter automakers are to be believed. Considering that they were in all-on crash mode last year and into the end of 2009, this is good for them - not so good for anything else.

* In domestic private investment the only place we saw gains was in "equipment and software." Residential and non-residential structures were both down big, seasonally adjusted (10.9% and 14%, respectively.) But the CapEx cycle that everyone is counting on for continued expansion is slowing q/o/q; it was up 19% last quarter, and is now up 13.4%. While that's a significant positive print if this was a short spurt and is now tapering off we got trouble in the back half of the year. The jury remains out on this one.

* Net exports were up nicely. Hint-hint: Policies that strengthen or stabilize the dollar will help this continue - like, for example, abandoning ZIRP! We need this to continue - if it reverses, we're cooked and fast. Bernanke needs to raise rates to above that of the ECB. He may get some help if a few European nations collapse, of course - but if they wind up at zero, we need to be at 1%, and that divergence needs to be established right now. We do NOT want a skyrocketing dollar, but because we import too much of our raw materials and it is the "value added" that we get to keep, we want cheaper imports of those materials - and we get that by being able to buy them with a stronger buck. The specific issue here is energy (oil prices); we can't have oil going back over $100, and the best way to prevent it is to get rid of ZIRP.

* Government spending is very interesting. The Federal government, of course, continues to spend. But most of the government's deficit spending isn't going into direct expenditures - it is instead going into transfer payments and handouts of various sorts, as the total federal spending was up only 1.4%. State and local spending were down big, as they're simply out of money.

* Finally, disposable personal income was up just 1.5%. Where is all the federal borrowing going?

I'm concerned with these numbers - quite concerned in fact. The Federal Government borrowed (and presumably spent) $462 billion in excess of tax receipts over the first three months of 2010.

But PCE - personal consumption expenditures - was up $83 billion and federal spending was up only 3.5 billion.

Where did the other $375 billion go?...

Into a black hole of covering existing obligations, it appears, and the final private demand GDP deficit covered by this is almost exactly 10% (GDP for the quarter is ~3.650 trillion, so $375 billion is roughly 10% of that.)

What does this mean? It means we've not turned the corner on this graph, which was current as of 12/31/2009 (and which I can't get an accurate read on until the end of this year):



I don't like it folks. All the claims of "economic recovery" are in fact claims of "government is propping up 10% of final demand, and that propping up is disappearing into a black hole."

There's no evidence in this report that the economy is recovering - that is, that the artificial "borrowed and spent" support the government has been providing for the last two years is being replaced with actual final demand.

The positives in the GDP report are automobiles (strong this quarter) and a positive, but weakening CapEx cycle in business spending.

But the key item for me in this series, which is evidence that the federal government's replacement of final private demand is moderating and being picked up by private economic activity, is utterly absent. In fact the influence of those dollars, as shown by the final print compared to last quarter, is waning.

One-sentence summary: The rocket is running out of fuel.