March, Thursday 29, 2012

DOW + 19 = 13,145

SPX – 2 = 1403
NAS – 9 = 3095
10 YR YLD -.04 = 2.16%

OIL +.52 =103.30
GOLD - .70 = 1662.40
SILV + .22 = 32.36
PLAT – 11.00 = 1631.00

Let's talk about your retirement. The numbers that are selected with the highest frequency are: 48, 36, 53, 12, 27, 31, 51, and 52 – that's for the first selection on the MegaMillions lottery ticket. The most common numbers for the Mega ball are 36, 9,7, 35, and 2. You're scrambling for a pencil. You can always wait about an hour and we'll post the audio archives of today's show at MoneyRadio.com. Of course, even if you pick those numbers, your probability of winning the lottery are beyond astronomical, and the crazy part is that for many people, even with the ridiculous odds, this is their best chance at retirement, or getting out of debt. The estimate is that the jackpot for tomorrow's drawing is up to about $550 million, so it's interesting, it's fun to fantasize. There is some entertainment value. I'm just suggesting that it might be a good idea to have a Plan B.

You know, personal discipline, a savings plan, an investment plan, solid information – it's not that difficult, just keep it tuned to MoneyRadio. It's not as fast as the lottery, but the odds are much better.

While winning the lottery would be sweet, there are some people who seem to have won the legal lottery. They collected get out of jail free cards and they get to keep their booty. Take for example the crew at MF Global.

While you might suspect that stealing $1.6 billion dollars from client accounts would result in legal difficulties for someone – no – you would be mistaken. Billions of dollars can be vaporized with impunity, and MF Global is the example du jour. Apparently, these get out of jail free cards have been passed out like candy.

The idea that forging signatures, that notarizing very important legal documents really improperly in thousands of cases -- maybe millions -- the idea that that is somehow is going to be allowed to go on with just sort of a penalty of some kind or a fine, the cost of doing business, and not prosecuted in the criminal courts. How the hell do they get away with it?

You have many small people, small fry mortgage fraudsters who are in jail. I mean we are talking about the people who were straw buyers for homes who defrauded banks. They are in jail for a reason: because they perpetrated a fraud. These banks whose employees were forging signatures should also have been prosecuted with vigor and they were not. They were simply allowed to negotiate their way out of trouble and negotiate their way with shareholders money. They are not paying it out of their own executives' pockets; they are paying it out of the shareholders' pockets. There really is no accountability here whatsoever.

There were 1,100 criminal referrals in the S&L crisis and there were 839 convictions. Who is in jail for the thefts of the past 4 years?

The multi-state mortgage settlement allows the banks to continue with their pattern of foreclosure fraud. The servicing standards are supposed to make the banks clean up their acts but they are worthless if they are unenforceable. One thing the mortgage settlement did was to give the banks a get out of jail free card for years of fraud. The settlement includes liability releases covering fraudulent conduct up through February 8, 2012 – after that the bankers could be sued for all the fraud they're committing now and will win the future – at least that's the story in theory. Don't hold you're breath waiting for the prosecutions.

And the reason this remains relevant is because we had it shoved in our face as part of Ben Bernanke's Federal Reserve Propaganda Lecture Series Part 3. Bernanke claims that the Federal Reserve averted a second Great Depression by bailing out the big Wall Street banks during the financial crisis. (say hallelujah and praise be to central banking) and he says that if a similar financial crisis comes along that the correct “policy response” will be to do the exact same thing again.

We're seeing it play out in Europe. The issue which dominates the European debate says that choking discretionary net public spending combined with vigorous “structural reforms” such as ransacking wages and working conditions will promote growth. Call it the Best Buy recovery program. Let's see how that works out. Cutting waste is one thing but I'm not sure how closing stores increases sales.

Anyway, Part 4 of the lecture series wrapped up today. Bernanke claimed that in the period after World War II, "many central banks began to view financial stability as kind of a junior partner to monetary policy—it was not as important," Mr. Bernanke said. "It's now clear that maintaining financial stability is just as important a responsibility as monetary and economic stability, and indeed this is very much a return to where the Fed came from in the beginning." Yep, monetary stability. Since 1913, the Fed has managed to destroy 97% of the value of a dollar. The only thing stable has been the decline.

Now, in case you forgot, the policy response, which is currently being repeated in Europe and might be repeated domestically – the great plan was to bailout the big banks. Not all the banks. The little banks could fail, and hundreds were allowed to fail, but the big, “systemically  important financial institutions” got bailed out. And so now we have systemically important financial institutions that are bigger than ever, and represent an even bigger threat if they face failure. Back in 1970, the 5 biggest U.S. banks held 17 percent of all U.S. banking industry assets. Today, the 5 biggest U.S. banks hold 52 percent of all U.S. banking industry assets.

And according to the Comptroller of the Currency, the mega banks are more dangerous than ever. JPMorgan Chase has more than $70 trillion in exposure to derivatives, Citibank has more than $52 trillion in exposure, and Bank of America has more than $50 trillion in derivatives exposure. Of course, they've hedged these trades, so it's not like those 3 banks could really lose $172 trillion dollars. It's probably not even 2 or 3 percent that could actually be lost, probably less than 1 percent, because of the hedges, which are held by the other mega-banks. But, hey, the odds that something could go dramatically wrong are probably like 100-million to one. I mean the odds are almost as bad as your chances of winning the lottery, which are 176-million to one. Here is the crazy part – someone is going to win the lottery, maybe not this week, maybe not next week, but somebody is going to win the lottery.

For the vast majority of Americans, we'll be left holding worthless paper. The mega-banks are doing fine but the American people are not in better financial condition. National debt has increased from 10 trillion to more than $15 trillion dollars. State and local governments are facing massive debt. The American people aren't better off. The bankers are doing fine. Bernanke can create money out of thin air and loan it to his friends and that money can buy get out of jail free cards. And so buy a lottery ticket. Good luck

And don't worry, everything is under control. The global financial system probably won't meltdown, again.

There was a very good article by ChrisMartenson yesterday. Let me quote, because there's a great line. The article is titled “Gold is Manipulated but that's Okay.”

“The price of gold is being actively managed by central planners and their proxies. The main culprit here appears to be the US authorities, as the manipulation is most apparent in the US open gold market. For the most part, this 'management' has resulted in letting the price of gold rise, but not too much, or too quickly.

“The price of gold has always been an object of interest for governments and central bankers. The reason is simple enough to understand: Gold is an objective measure of the degree to which fiat money is being managed well or managed poorly.

“As such, whenever paper money is being governed poorly, the price of gold becomes an important barometer. And this is why the actual price of gold is a strong candidate to be 'managed.' Or 'influenced'. Or 'manipulated'. Whichever word you prefer, they all convey the same intent.”

The thank you is because it provides a cheap entry point to pick up physical metals.

The U.S. economy grew at an annual rate of 3 percent in the final three months of 2011, the best pace in a year and a half. Growth has probably slowed to 2 percent or less in the current January-March quarter. Inventory building was a key driver of growth in the October-December quarter. Even though businesses are still replenishing their shelves, the pace has likely slowed. That has likely slowed growth this quarter. Businesses are also investing less in machinery and equipment this year after a tax credit expired at the end of last year. One bright spot for the economy is that hiring has picked up. The economy has added an average of 245,000 jobs per month from December through February. The Labor Department said that the number of people seeking unemployment benefits fell to 359,000 last week, its lowest level in four years.

The communication breakdown that blocked trading on parts of the BATS exchange for more than an hour has been seen in at least 110 instances across the nation’s 13 stock exchanges over the last year. That number has gone up every year since 2007. In one instance in January, BATS said it was unable to trade with the New York Stock Exchange for nearly 30 minutes. Meanwhile, exchanges have halted trading in company shares after sudden spikes or falls, as happened Friday with Apple, at least 265 times over the last year — more than one for every day of trading. These circuit breakers kick in after stocks experience 10 percent swings in a short period of time and can be caused by a technical error or waves of electronic trading on news developments.

If you haven’t followed it, Credit Suisse issued this exchange-traded note called TVIX that was a 2x levered bet on the VIX. They suspended new issuance about a month ago due to position limits, and people were just so damn excited to own the thing that its price crept up to 189% of its fair value, where “fair value” is a reasonably easily measurable thing based on the formula in the TVIX prospectus. Then last week Credit Suisse announced that they would be creating more units, and the price plummeted to and then through fair value, which is what you’d expect to happen. Except that it started plummeting a few hours before that announcement, which is a little suspicious. Some of these ETFs are getting somewhat esoteric, and it is real easy to think it is doing one thing, when it really isn't. I'm just saying, tread carefully. Or don't worry about volatility, just buy a lottery ticket.

Sinclair Noe