Friday, December 19, 2008


If the US financial media, the government and Wall Street less corrupt, the top news story of the day would be how Standard & Poor's downgraded 11 financial institutions and cut the ratings on the banking systems of both the United States and the United Kingdom.
S&P cut ratings on Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo Bank.

Of course, were the titanic institutions of our nations less corrupt, none of this would have happened in the first place. The stock market would not have gone wild, with the Dow advancing to 14,250 in the longest bull market in history. Banks would not have been able to loan $500,000 to people with no jobs to buy houses, the Fed would not have inflated the money supply, yada, yada, yada.

But, the government regulators proved to be as malleable and corrupt as their counterparts on Wall Street, likely because most of them came from the very same firms which were packaging mortgages into SIVs, MBSs and backing their positions with credit default swaps (CDS) behind which was nothing, absolutely nothing.

So, seeing is believing. From the above-linked article:
The ratings agency also cut the bank industry country risk assessment of the U.S. and the United Kingdom to "Group 2" from "Group 1."

The United States is now a country with a second rate banking system. Of course, that assessment is from one of the very same firms which rated subprime MBS at AAA. The more money the Treasury insists on stuffing down the black hole of failed banking institutions via TARP, the sooner our Treasury debt will also be downgraded, to AA, A, B, and eventually to junk, which it is fast becoming.

And speaking of the TARP, Secretary Paulson of Treasury, bagman extraordinaire of Goldman Sachs, is now asking congress to release the rest of the money in the program, another $350 billion. Ostensibly, Paulson wants the money before the year ends or a new congress is seated, or before President-elect Obama is inaugurated. There is already discontent in congress over how the first half of the fund has been employed, and it's likely that congress - especially the Senate - will jawbone the issue to until after January 20.

I mention that the government and the media are corrupt because of the events of this morning, the final Friday before Christmas, but also a quadruple witching day. Prior to the US markets open, at about 7:30 am, all futures were trading lower. Foreign markets were down, reacting to the negative rumors of the S&P downgrades and the news that Japan's central bank was cutting its key lending rate to 0.1%.

At 9:00 am, President Bush announced a $17 billion loan provision for two the Big 3 Detroit automakers: Chrysler and GM. This was an action the lame duck dimwit president could have announced at any time over the past week. Why did he wait until today? To give cover to the options traders poised to rake in billions on this quad witching day. Once news broke that the administration would use the remaining TARP money to bail out the flagging auto companies (Ford has already stated publicly that it doesn't need a loan), the futures shot higher. The markets opened on a positive note, and quickly the Dow was up 180 points. Ka-ching! The Wall street crooks scored again, no doubt.

It didn't last, of course. By midday, stocks were once again bouncing off the flat line. The Dow spent most of the final hour in the red, dropping by as much as 50 points, though the NASDAQ maintained a positive bent all day.

By the close, it was a draw. The Dow and Comp. lower, NASDAQ and S&P higher. All were marginal moves.

Dow 8,579.11, -25.88 (0.30%)
NASDAQ 1,564.32, +11.95 (0.77%)
S&P 500 887.87, +2.59 (0.29%)
NYSE Composite 5,616.05, -1.71 (0.03%

Advancers led decliners slightly, 3730-3028. New lows continued to maintain an edge over new highs, 205-33. Of any pattern I have ever followed, the trend of consistently more new lows than new highs on a daily basis, now having run into its 14th month, has to be the most telling. That condition maintained every market day except five or six during that span. It is a truly persistent and dominant pattern, which cannot bode well. When that condition begins to modulate between the two extremes, then we will have likely found a bottom. Whether any long term recovery can proceed from there is questionable.

Volume was the heaviest in weeks, likely due to options expirations.

NYSE Volume 2,420,350,000
NASDAQ Volume 2,597,346,000

While stocks were dithering, commodity prices were being beaten to death. Oil was off another $2.35, closing out the January contract at $33.87. Gold lost $23.20, to $837.40. Silver slid another 27 cents, to $10.85. I continue to be fascinated at the gold and silver prices. They have maintained value best (they are down the least) in recent months, which is to be expected, though in a deflationary environment, their upside is limited. When inflation once again takes hold, which may not occur for 3-4 years, the metals will be able to surge higher. Not until then.

A few articles that are worth reading regarding the general malaise and the government's mishandling of the Wall Street mess are the latest from the Golden Jackass, which links to iTulip, where the question, Major US banks worse than Japan's zombies? is pondered and discussed at length. Finally, the Institutional Risk Analytics offers a glimpse of what may be coming to America in their most recent story on the US Bank Stress Index and CDS in Europe.

And, last but not least, the video is of Gary Schilling explaining why he sees the S&P 500 heading to 600 in 2009.

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