Investment

» BoltonCT - Hedge fund = Ponzi Fund?

Hedge funds have not been required to objectively value their assets. Exaggerated values meant higher reported profits and higher obscene management fees for the fund managers as Warren Buffet pointed out. Now that investors want to capture some of the reported hedge fund investment profits they get locked in because the truth of the actual losses would be discovered and the funds would have to write down their values to market and expose how they have been defrauding investors by lying about asset values. Many unregulated hedge funds may be considered essentially indistinguishable from legal Ponzi schemes that show great profits until people request their money back. It is never the right time for a Ponzi fund to liquidate.

Drake Management LLC rumored planning to shut its largest hedge fund and continue to restrict redemptions in other funds. GO Capital Asset Management recently blocked clients from withdrawing cash a fund. More than a dozen hedge funds have closed or had to sell assets.

The banking industry is staggered by about $190 billion of asset write downs caused by the collapse of the sub prime-mortgage market. The Federal Reserve's plan to inject $200 billion into the banking system will likely fail to break the freeze in money-market lending. It could trigger another wave of fraud as con men take written down assets and backdate them as sold off losses that are already recognized. Then the criminals can use them to get 100% back in treasuries which they convert to cash and then disappear and let American tax payers pick up the tab. If the FBI and the Department of Justice do not crack down on the Wall Street criminals soon, Americans will lose all confidence in our government and our economic system and the bear market could become a rout like during the Great Depression.

Dollar falls to record low $1.55 per euro on Concern that the Fed package won't succeed. Oil is at $110 per barrel and $2000/oz for gold could be this year if the FED continues the 15.7% money supply growth rate and the federal deficit keeps rising.

-- posted by BoltonCT

» BoltonCT - Black Thursday the 13th?

The stock markets in China are now down an average 4.82% and Japan is down 3.3%. Indonesia is down 4.5% and India is down 4.8%. Germany is now dropping and down 2.4% and France is down 2.3%. Britain's market is flat today down 1.8%.

American futures are all over the place at the moment. Home foreclosure filings nationwide jumped 60% in February compared with last year. Rising foreclosures, low FED manipulated interest rates, and big losses at Fannie Mae and Freddie Mac are making it harder for people with good credit to get a traditional mortgage. With the FED artificially reducing interest rates, sane mortgage lenders realize that when inflation really kicks in the interest rates will rise so fast that they will go bankrupt unless they provide only variable rate mortgages. The FED can pretend they have magical powers but the people loaning money have to live in a real world with the consequences of 15+% expansion of the US money supply. Gold at $3000/oz may be possible, but that may also be the hotel cost for a night in London or Paris when it occurs.

The dollar fell below 100 yen today for the first time in thirteen years and to a record low against the euro.

A Carlyle Group fund moved closer to collapse yesterday indicating investors are becoming more aware that skeletons (not real valuable assets) fill the vaults of many funds. America manages and regulates hedge funds similar to the way La Cosa Nostra does it or like they do it in Columbia. Many are family operations and the SEC doesn't know half the names of the parties involved. Please forgive me if as I do not mean this as an insult to Columbians or La Cosa Nostra.

Congress is now getting interested in the criminals who call themselves CEOs and pretend they fulfill their fiduciary responsibilities while pilfering their employer's accounts and even after they cripple the business or give it away and then quit. Not until a goodly few executives are behind bars will confidence be restored.

Now that Spitzer has resigned as governor of NY maybe his pump and dump friend Creamer will go too. It always amazed me that the stocks the mad men would decide to pump would already be up almost 10% just before the show recommendation and that gain would be part of what was used when they quoted their performance. Why was it always up so much before their listeners had an opportunity to buy? It was just amazing. They would promote disasters and epidemics to catapult little thinly traded nothing companies like QDEL and others into the stratosphere and after they doubled they still recommended them as the in-the-know investors liquidated their positions. It is almost as though media pandemic and disaster shows were part of their market timing. They pumped Google first based on accelerating growth of income and ignored telling investors when that income was decelerating. You can bet the "in" people dumped Google before it collapsed too because you did not hear any of the big guys complain about it.

Was there ever a Black Thursday the 13th? The BBC does not sound very good today.

-- posted by BoltonCT

» BoltonCT - The 50 American Colonies

The 50 American Colonies

We the 50 American Colonies pledge our allegiance to the EU and do solemnly swear to dedicate our minds, our hearts, and our hands to our Nobel superiors in the EU, and henceforth pledge....

Senior executives from Microsoft (MSFT) and Yahoo (YHOO) met for the first time Monday to discuss Microsoft's takeover offer for the internet company. That would be a combination that would take away the advertising income of Google (GOOG). The fact that it was broken to the press is a sign that they got along just fine without the bankers and lawyers. While the Wall Street pump and dump people and the European Union may not like this and will try to discourage the move, the merger will be good for America and consumers. The Federal government needs to take action to stop the EU from taxing American ingenuity. If the EU succeeds in reducing American ingenuity to European mediocrity via their imperial fines, and regulations then they will have succeeded in making the USA their 50 American Colonies.

It is becoming obvious the USA stock market is being manipulated now with a lot of money like the markets in China are manipulated. The question is how are they doing it, is it legal, and how long can they do it. Is the money meant for stopping the credit spiral being diverted to chase stocks? If so, probably all that money will be lost because it will go into the pockets of the criminals who targeted the poor and in their twisted minds told world investors they were helping the poor find homes. It was primarily the bleeding heart and politically correct fund managers who were their targets. Now the federal government is giving the criminals more money that they can use to borrow the worthless tranches (French for slices of the derivatives) and take 100% of the money in treasuries. The behavior of the market now resembles the Hand Seng. How long will the manipulation last. The confidence problem will last until the FED stops giving the criminals more money and starts putting some of them behind bars. RICO extortion laws should be enough to do it.

Asian markets were mixed and basically didn't give back any of their 4% loss they had the day before. The same is true in Europe but to a lesser degree. In both cases the gains and losses seemed fairly random and neutral. But there appeared to be some sort of intervention in the USA markets yesterday. It started after an initial plunge of over 2%. It seemed to start precisely at 11 AM. It triggered many of the old SAR indicators and helped the MACDs but did not trigger yet any of the New SAR (Spiral) or New MACDs this morning report provides. Any manipulated rally will of course end up being a sucker-rally because America cannot afford to continue to throw money at the WS toilet bowl. We need to give WS crime a good flush instead.

So for today the futures say the market will start slightly lower but with FED trying to manipulate the markets, who can say what will happen next?

-- posted by BoltonCT

» BoltonCT - Why it gets worse…

Why it gets worse...

or better (if you go short) after the market is declining.

Debt is relentless when credit risk rises. The FED lowering rates does not relieve the problem. The rate a corporation or municipality pays is related to risk. The lowering of the FED rate makes a loan more profitable for a bank but does not lower the risk. The rate is lowered to give the banks more of a profit because banks have lost so much money themselves they need the lower rate just to survive. After being burned so badly the banks actually raise the rates they charge while the FED is lowering the FED rate. That is why the FED has not been able to control lending rates. They rise in spite of the FED.

Corporations with a lot of leverage are corporations with a lot of long term debt and are now at very high risk. They have all that leverage so that they can take a 30 million dollar investment profit and turn it into a 300 million profit using other people's money (OPM). But when they lose 10 million their leverage loses 100million because they have to pay back OPM. They either have to borrow more to pay interest or they have to sell their assets. They therefore see their rates rise faster than others do so suddenly they can become terminal hemorrhaging cases. They cannot pay down their debt with losses. As their losses increase lenders first charge more interest. Then they refuse to lend more. The increase in interest is effectively much worse because that too is leveraged. Today debt is relentless and once a high debt corporation starts running loses the vultures see a good thing and they come in.

Now look at it from the investor's standpoint. His is in the hot sun too and his mind has become numbed by the volatility he accepted in the past when the stock price was high. He doesn't even realize his bones are being picked when the price starts falling. Since the corporation cannot get any more credit the corporation must sell assets to pay the interest. Therefore the corporation assets shrink fast and the debt/asset ratio multiplier gets even worse.

http://finance.yahoo.com/q/ta?s=BSC&t=6m...

Six months ago Bear Stearns (BSC) was trading at $130 per share and a 10-pt move in a day was psychologically ignored. As the market declined the Bollinger bands opened up and a 20-pt move became nothing to the investor as it was almost as often up as it was down. Because such a small portion of stock holdings trade on any given day 99% of the owners were conditioned to 10 to 20 point moves. On Friday it was just another 20-pt move but on Friday that was a 54% loss for anyone who still held BSC the day before. And if it happens again on Monday it will be a 66% loss as BSC goes from $30 to $10 per share. The conditioned (brain dead) investor does not cut his losses he rides it right down and would rather be wiped out completely than take the 20% loss as he could have one month ago.

So you can see why vultures circle a dying company. People are conditioned to accepting certain price moves that amounts to a fixed loss that stays the same all the way down. But the vultures that get in late actually have a better return/risk ratio than the vultures that start the attack. The first to short a company is at higher risk that the company can actually turn things around. But as the end approaches death comes much more quickly.

The moral of this story is that if you own shares in a company whose debt equals its assets you have a company with a leverage of two to one and are at some risk. The losses are doubled when things get bad.

If your company has a debt to asset ration of three to one your losses are quadrupled in a recession and your brain may already be numbed and the vultures are probably circling.

If you own stocks now with debt to equity greater than 4 you may already be brain dead and cannot feel the vultures picking at your bones.

-- posted by BoltonCT

» BoltonCT - Constant relentless calls on debt

Why the fall-off looks so steep as an equity faces constant relentless calls on debt.

The typical equity trends with a particular rate of change (constant percentage rate). That is why it is convenient to use the funny looking logarithmic scale because that scale makes the trend look like a straight sloping line going up or down.

But when a corporation is going bankrupt the cash is being removed at a fairly constant rate so the rate of stock price decline is fairly constant. And would look like a straight line on a normal plot. But the logarithmic plot then make the line look like the cash flow exiting is increasing when it is not. That is because the percentage of cash removed increases as the stock declines and you get the effect you see with BSC. BSC looks horrible even though the amount of cash exiting is hardly increasing.

http://finance.yahoo.com/q/ta?s=BSC&t=6m...

-- posted by BoltonCT

» BoltonCT - First test of a newly trained indicator

In response to First test of a new indicator posted by BoltonCT:

We have tuned the combination MACD and Spiral (parabolic SAR) making it more sensitive and the seven days of sucker rally it detected Feb 21 does not occur with the new settings but all the previous calls remain the same. Here is what the first version of the new indicator did:

Feb 21, 2008 8:32 PM
» BoltonCT - First test of a new indicator
Ok the New Spiral indicator for the S&P just barely gave a buy signal today and the New MACD looks very likely as though it will give a buy signal Friday. This is the first test and it is a squeaker. The New Spiral triggered near the high during the day and then the market retreated. The New Spiral does not depend on the closing price but on the trigger price that can occur at any time during the day just like the Parabolic SAR. The new spiral sell threshold for this buy signal starts from the lowest price that occurred since the last sell signal. That was 1316.75. The next few days will show if this new indicator is much good

Well that new indicator was not perfect but now it has been re-trained. What happened is that it opened and shut with the Feb fools rally and then opened and shut within seven days to close out the fools rally. This is the way it should work under desired conditions. Usually one half the New Spiral/MACD indicator triggers indicating a period to start covering shorts and start going long. The other half kicks in at a later date to say, "Ok the cherry picking is over".

Then many weeks later when the market has risen substantially one half of the indicator says start cherry picking by liquidating long positions and cherry picking by opening new short positions. Again the second half kicks in at a later date to say, "Ok the cherry picking is over".

The indicators are designed to give a window of opportunity near tops and bottoms. That is how the cycle was intended to work and did normally work and should continue to work with the new tuning (neural network learning).

In conclusion the New MACD/Spiral indicator says the bear is fully back in place and as more people get out of stocks in pension and 401 plans and into fixed rate low risk securities, the market will fall more sharply. The previous analysis of BSC showed that a constant cash flow bleed out of the market will result in a steeper market fall off because the same price decline becomes a much higher percentage decline as the market falls.

We should avoid any equities now that have a LongTermDebt/equity ratio greated than 2 or a current ratio (short term assets/liabilities) less than 1.2.

-- posted by BoltonCT

» BoltonCT - Bear to last 15 months

Recession, Far More Foreclosures, and Eventually, Commodity Weakness
John P. Hussman, Ph.D.
http://www.hussman.net/wmc/wmc080310.htm

My opinion is that the current market cycle will probably be completed with at least a standard, run-of-the-mill bear market decline that achieves a loss of about 30% from the highs. That's a plain-vanilla bear, and assumes that stocks do not move to what would historically be considered "undervalued" levels. While such a decline would put stocks at a relatively low multiple on the basis of existing "forward operating earnings" estimates, I have little doubt that those estimates will be slashed as the year progresses.

A run-of-the mill bear runs about 15 months, so if we mark the highs somewhere about July-October of last year, it would not be unreasonable to brace for the possibility of continued market difficulty for the bulk of 2008. If that is the case, we can also expect strong intermittent "bear market rallies" as we saw off the January low. Better valuations and periodic improvement in market internals may allow us to accept some amount of risk from time to time this year, but we're not in any hurry to "buy the dips" without supporting evidence, particularly giving growing debt problems in the economy.

-- posted by BoltonCT

» BoltonCT - FED to push America into the abyss

Asian markets seem to be in free fall tonight. The Hang Seng has fallen about5% and the Nikkei is now down 4.2% at 10:40PM EST

It appears that no matter how much the FED cuts their rate on Tuesday we will have some sort of economic free fall. It will no doubt push the inflation adjusted real interest rate negative in these United States for the first time pushing America into the morass that Japan fell into 18 years ago. It is likely that the fall of the dollar will accelerate driving inflation to higher levels and driving the real interest rates further negative.

Imagine that gift of negative interest rates for Wall Street to leverage. Borrow from the FED and buy commodity futures. Then borrow from the FED and buy and store oil and commodities themselves. There will be a massive building of storage facilities driving up the price of our food and energy. Then they sell some at inflated prices to pay off the loans and then borrow even more. The rapidly increasing inflation will drive the real interest rates further negative. That is a destabilizing action the FED is taking Tuesday, one that feeds on itself and will of its own grow more destructive.

Tuesday's action will destabilize the economy if the talking heads are correct in saying the FED will drop rates either 0.75% or 1%. It is true that the FED can reverse the effect later but only with a much larger rate increase say to 5% if inflation is at 5%. Such an action would make things much worse. The economy will falter again with such a great increase so the FED may have to drop the rate to 3% resulting in a negative 2% real rate. Then if inflation hits 9% and the fed will have to increase the rate 6% to raise the real interest rate back to 0%. But a 6% increase will stall the economy so they reduce the rate to negative real interest again. The swings in the economy will become larger and larger unless the FED settles on the Japanese solution of 18 years of economic stagnation.

Japan chose 18 years of stagnation to avoid 12 months of recession and a good corporate cleansing. Why is the FED so foolish as to not see that Wall Street and our corporations need a good bath and a good flush of the corruption that grows wild when real interest rates approach zero and investors turn from productive investment to high leveraged financial gimmicks.

Therefore it seems inevitable that the dollar and the American stock market will react accordingly as it has reacted to the similar FED actions in the past six months.

-- posted by BoltonCT

» BoltonCT - The only thing we have to fear

The only thing we have to fear

is fear itself... and talking heads who imply that the WS crisis is sinking the economy when it is only sinking their 2008 bonuses. The following article may have contributed to the sell off in Asia and now Europe.

Headline: By JEANNINE AVERSA, AP Economics Writer
WASHINGTON - The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.

See the article and the FED chairman's face at:
http://finance.comcast.net/www/news.html...

Again, the problem is that as long as folks who preyed on the poor homeless and the politically correct pension funds are sheltered... people will not trust Wall Street. And as long as the FED continues to throw zero real interest rate taxpayer money at the thieves who started the sub-prime debacle people will lack confidence in the FED and investors are susceptible to panic. It was the zero interest money that started the problem in the first place and that ended the boom in Japan 18 years ago.

Some will argue that it was not actually zero interest money but when you factor in energy and food costs the inflation rate made it zero interest money. Now they want to throw negative interest money at the geniuses who can then leverage it thirty two times like they were doing at Bear Stearns. Bob Brinker fully supported the FED delusion that were could ignore the price rise of energy and food. When seniors switch from steak to dog food as was happening in the 1970's the FED should not construe that to mean that substitution with cheaper products reduced inflation. Substitution of low quality products like dog food reduced the living and quality of life standard of retired person's just as much as the price rise of the steak. The FED will not be trusted while they lie to the American public about the real level of American inflation.

Today market resistance levels will likely yield and the market will begin the next major leg down.

The Hang Seng is down 5.2%, the Nikkei is down 3.7%, and the Shanghai Composite is down 3.6%.
The German DAX is now down 3.4%, The French CAC is down 3.3%, the British FTSE is down 2.4%

The market will probably drop faster Wednesday when investors realize the politically correct con men are not being prosecuted. The reason the con men are free is because it was politically correct to give poor uncredit worthy Americans cheap mortgage money for a couple of years before the trap sprung and the mortgage payments shot up. After all it was only OPM (other people's money) and they got a good deal while the scam lasted. Also Greenspan liked it that he did not have to worry about a recession (a corporate bath) during his last years. Now investors believe we need a WS flush and they are going to get to a safer place until the con men are busted. People are shifting their 401's to safer insured areas now. That is one of the main topics Bob Brinker has been addressing this weekend. He was surprised at so many calls from people with more than 100K in CDs that are only insured to 100K. Bob thinks we have Federal Insurance but in reality it will only cover about a penny on the dollar without a bailout of that federal insurance fund. This is the flight to safety that we predicted two months ago and it will take a few months to settle out.

-- posted by BoltonCT

» BoltonCT - Loss of Solvency not cash is cause of Market Meltdown

As inflated Bubble asset values now decline... institutions become insolvent.

That is why the FED is acting irresponsibly by employing market bubbles to inflate the economy. All the FED is doing is shocking the American economy with periodic pulses of monetary expansion at the same frequency as the business cycle. It encourages speculation and leveraging while they do it and insolvency convulsions when the economic opiate is withdrawn. It destabilizes the American economy.

The FED faces an economy that is addicted, exhausted, and just wants to crash and break the habit. Any doctor, scientist, or engineer can see that what the FED is doing is destroying the health of our economy. Eventually the FED's method will kill the American economy that had been based on innovation and productivity but is now addicted to injections of monetary expansion.

If FED crackonomics continues our economy will go into cardiac arrest and then flat line like Japan. Some would say we are already starting cardiac arrest.

Shanghai was down 3.96% last night. Premier Wen Jiabao said China is deeply concerned about the potential global economic fallout from the U.S. subprime crisis. China's central bank is not ruling out the possibility raising interest rates even as the United States eases them. Wen said it would be difficult to keep inflation this year within Beijing's 4.8 percent target. Conservatively the US is well above 4.8% right now as most visibly prices of gasoline and fuel oil are expected to rise 33% and exceed $4/ gal this year.

Markets in Britain, Germany and France are all up about 2% today. Today Fed Chairman Ben S. Bernanke will likely the deepest interest-rate cut in our generation as the central bank struggles to prevent a meltdown in financial markets and a recession. All market indicators point to the next steep downward leg of stock market as starting very soon. Costly FED market intervention and support cannot be maintained indefinitely.

March 17, 2008
The Fed Can Provide Liquidity, But Not Solvency
See: http://www.hussman.net/wmc/wmc080317.htm
John P. Hussman, Ph.D.

With the Carlyle Group (one of the world's largest private equity groups) and Bear Stearns (one of the world's longest existing investment banks) suddenly plunging into chaos last week, investors should be braced for more trouble. What we observed last week is clearly a liquidity problem - the solvency problems are only beginning.

Think of it this way. A liquidity crisis is when you write a check for more than the amount in your checking account. You suddenly realize that you need to sell a big securities position to cover it, but selling everything at once might only get you "fire sale" prices. In this case, you need a loan for a few weeks to give you time to work out of your securities position. Without that short-term "liquidity," the check might bounce even though you really do have the assets to pay it off. In contrast, a solvency crisis is when the only asset you have to cover that check is an IOU from your Uncle Ernie, who keeps promising "I'll pay you every dime as soon as I win it back on the ponies."

This distinction between liquidity and solvency is badly reported and widely misunderstood. A few economists, particularly Nouriel Roubini, have emphasized the difference, but by and large, the phrase "Fed intervention" is heard by investors as "Fed bailout." The essential fact is that the Fed's provision of short-term (generally 28-day) liquidity does not represent a "bailout," and the Fed is emphatically not taking the default risk of the mortgage market onto itself.

Having plunged from a 52-week high of over $159 a share, Bear Stearns agreed over the weekend to be bought out by J.P. Morgan for the equivalent of (I'm not making this up) $2 a share. Now, I've been looking for a lot of trouble amidst financials, but that even I didn't expect. There will probably be further blowups and losses in the coming quarters, and more than a few entities will probably not survive in their present form - being liquidated or acquired by stronger institutions. I still think the concern from certain corners about anything more than a deep recession is overstated, but I'm not sure whether the Fed has retained enough credibility to forestall more blowups, and I remain concerned that the market hasn't even considered the potential losses in credit default swaps. The single largest trader in the CDS market is, perhaps ironically, J.P. Morgan.

The reason the Fed is taking on "private label" mortgage-backed securities (rather than just government agency ones) as collateral is because these are increasingly difficult to sell on the open market without taking a huge "fire-sale" discount. Again, the Fed is not assuming the risk of loss on these securities - unless its primary dealers actually go bankrupt too. Instead, it is providing a bit more time for sellers to find willing buyers in these securities.

As the Financial Times noted on Saturday, the co-founder of the Carlyle Group, David Rubenstein learned this after last-minute talks with the banks last week: "The Fed intervention was designed to help, but it had the reverse effect of what you would expect. People in the banks said, 'Because of this Fed move, the collateral is now worth more, so let's seize it and sell some of it immediately'."

The situation is bad enough that the Fed cut the D