Bill Cara: Daily Report for Mon, Sep 15, 2008

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September 15, 2008

Daily Report for Mon, Sep 15, 2008

I’ll quickly take you back to last Monday, when we saw the current credit market crisis starting to unfold. I wrote at the time:

The saga of Fannie and Freddie has overnight become an international best seller. The only common sense to be made of the situation comes from China… Elsewhere, equity markets are soaring – from +3% to +5% or more – because of short-covering in the banks. Yes, other stocks are positive on the session too, but not nearly to the same extent as international banks that are holding Fannie and Freddie toilet paper.
Here’s why markets are booming, temporarily at least, early this morning:

Opening in UK—
+12.0% Royal Bank of Scotland
+11.9% Barclay’s Bank
+13.0% HBOS Bank
+10.1% Lloyds Bank

Opening in France—
+8.9% BNP Bank
+10.0% Credit Agricole Bank

Opening in Germany—
+8.4% Deutsche Bank

Opening in Australia—
+8.8% ANZ Bank

Meanwhile, those markets are up, but not nearly as much.

I recommend you read what is being said by the China authorities today, where the equity market (Shanghai Composite) is down -2.7% to 2143.

(But) Traders are now walking away from safe-haven bonds and yields are rising. Check out this story from Japan.

Here’s the story you ought to be thinking about when trying to catch the top of the pop for the next short in the Financials.

Here is another; this one is about Goldman Sachs. Do you recall how I wrote recently that trading in GS does not seem right to me. Something is amiss. I even commented that maybe hearing that Paulson might be returning soon has ruffled a few executive feathers.

Today, like Friday afternoon, is short-covering day. The only difference is that the Interventionists have had all weekend to crank out media kits to financial editors, and now you are about to read a trillion words regurgitated from the Paulson Playbook.

Comments

After the US Jobs data was published at 8:30am ET, the DJIA futures sank and the market continued south for two hours. Suddenly – maybe it was a leak that Fannie and Freddie would be saved by this Administration – US equity prices firmed.

Whatever is happening with Fannie and Freddie seems to me to be a well-crafted maneuver by Washington insiders (Mr. Moral Hazard instantly comes to mind) to help Wall Street in the remaining days of this Administration. Oh sure there will be cries by panic-stricken investors that Fannie and Freddie are on the verge of collapse and that this single problem is the source of America’s economic and financial stress (ie, simultaneous economic recession and credit crunch) at the moment. But, as I see it, the ‘Blame it on Fannie & Freddie’ story is being scripted by public relations propagandist of the first order, Hill & Knowlton. Let’s just say for the record that the Boards of Directors and CEOs of Fannie & Freddie have quite recently publicly announced that their enterprises have adequate capital to sustain operations until well past the coming change of Administration. Then, why the panic?

What is wrong with America – the greed and gluttony of Wall Street and Washington insiders – will look like smack-mouth football in the next month, and the central characters behind it won’t give a damn. This is wrong – they know it; you know it.

The fact there is nothing you can do about it – to the detriment of your children and their children – is a tragedy. The decisions made in September and October by your elected representatives – societal leeches of the highest order -- will steal the wealth created by a whole generation of Americans.

PIMCO, the Fed of NY, the Treasury Secretary – oh my! Mom & Pop, you have been set up for a fleecing.

Yes, these are interesting times.

Interesting to me is that Former Federal Reserve Chairman Alan Greenspan said the financial crisis that began with the collapse of the subprime- mortgage market last year “is probably a once in a century event” that will lead to the failure of more firms.

To call a spade a spade, Mr. Chairman, the financial crisis started on your watch.

At what point will the leaders of America stop fooling themselves and stop trying to deceive Americans?

Earlier today, Asia-Pacific equity markets have spoken. Australia’s All Ords index dropped -1.66% to 4875, and India’s Sensex plunged -3.35% to 13531, while China and Hong Kong was closed. Other major markets in the region followed: Taiwan (-4.1%), Indonesia (-4.7%), and Singapore (-3.3%).

At this point in the day (7:50am ET), the UK FTSE, German DAX and French CAC are down between -4-7% and -5.3%. If the NYSE were to plunge as much today, the DJIA would close at roughly 10800, which would be the biggest single day loss in many years. The DJIA futures are down -359 at the moment.

November Crude Oil is down over $4.00/bbl to 96.55 because the banks have cut credit to those speculators who drove the price to almost $150/bbl just two months ago. In a panic themselves, the banks have limited funds to lend. Depositors are withdrawing funds, which means that the multiplier reserve banking system is operating in reverse. Banks that are short funds are trying to borrow from stronger banks, and finding limited success. Some of the biggest clients, the hedge funds will be forced to shut down, flooding securities and futures positions onto the market just as frightened traders are pulling their bids.

In a few words, the speculative ebullience is now working in reverse, undermined by the credit markets.

The $USD is being supported by the Fed to try to stave a run on the banks, and precious metals holdings are being sold and short positions being increased by the Interventionists. Gold, silver, platinum and palladium prices are cratering going into 8:00am ET.

But this move against the precious metals will backfire. The recent cycle bottom will be tested, and speculative Funds and under-margined brokerage accounts will be forced to sell. A new bottom or a confirmed bottom will be set here and then, I believe, the prices of the precious metals will begin to soar. Keep your ammunition dry because you are starting to see the deer in the headlights look on the faces of the Interventionists. If those people (Paulson et al) compound their mistakes here, there will be attempts to impeach and arrest them.

Remain calm. The voice of reason is on our side. We have done nothing wrong. We are the ones who deserve to come out of this crisis stronger and weathier.