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Crooks, Computers, and the Coming Crash

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Crooks, Computers, and the Coming Crash
By Graham Summers  Sep 1 2009
As stocks continued to rally into September, one has to ask one’s self, “just who’s buying this rally?”
The answer?
Computers and no one else.
I’ve written extensively about the computer trading programs that are dominating this market. All told, High Frequency Trading Programs HFTPs control 70% of trading volume on the NYSE.
However, at this point, five stocks (yes only five) account for 40% of the trading volume on the market. Those five stocks: Citigroup, CIT Group, Fannie Mae, Freddie Mac, and AIG. Think about that, five stocks out of several thousand, are accounting for 40% of ALL trading.
And which five are they?
Five that are virtually guaranteed to be propped up by the government in one way or another (CIT indirectly through Goldman and other government-aligned groups). This summates today’s market like nothing else: folks are ONLY trading the investments that they know are on life support from the government.
That metaphor extends to the entire economy. Nearly 20% of incomes come from the government. More than 34 million Americans are on food stamps. This will continue. The government will extend unemployment and every other short-term “fix” it can. But it won’t do ANYTHING to create real job growth.
The life support metaphor extends to the financial system as well. The Fed has extended TRILLIONS to support virtually everything out there. Here’s a brief list of some of the more major items:
The Federal Reserve cutting interest rates from 5.25-0.25% (Sept ’07-today)
Bear Stearns / the Fed taking on $30 billion in junk mortgages (March ’08)
The Fed opens up various lending windows to investment banks (March ’08)
The SEC proposes banning short-selling on financial stocks (July ’08)
Hank Paulson uses the blank check with Fannie/ Freddie spending $400 billion in the process (Sept ’08).
The Fed takes over insurance company AIG (Sept ’08) for $85 billion.
The Fed doles out $25 billion for the auto makers (Sept ’08)
The Feds kick off the $700 billion Troubled Assets Relief Program (TARP) with the Government taking stakes in private banks (Oct ’08)
The Fed offers to buy commercial paper (non-bank debt) from non-financial firms (Oct ’08)
The Fed offers $540 billion to backstop money market funds (Oct ’08)
The Feds agree to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
$40 billion more to AIG (Nov ’08)
Feds agree to back up $140 billion of Bank of America’s liabilities (Jan ’09)
Obama’s $787 Billion Stimulus (Jan ’09)
Fed announces its plans to buy $300 billion of Treasuries (Mar ’09)
Most if not ALL major banks, the stock market, the debt market, and more are on Fed life support right now in one form or another. Take this life support away, and you have a full-scale collapse. I’m talking about 300 on the S&P 500 and 3,000 on the Dow.
And what a life support it is:
The above chart is what you get when you throw trillions (literal trillions) at the financial system. But does throwing money around create sustained recovery? NOPE. I’ve often railed that the market is discounting an economic recovery that does not exist. However, I may have been wrong… at least in terms of what the market is discounting.
Today, I would argue that the market is discounting Ben Bernanke’s “juicing” of the system. The rise from 666 to 1,033 was the market announcing “this guy is going to throw as much money as he can at the crisis and it’s going to flow into the market.” This is a liquidity rally driven by non-thinking computer programs, not a rally based on fundamentals.
Speaking of which…
I’ve watched with first amusement, then disgust, and ultimately outrage as various pundits proclaimed Bernanke’s efforts “saved the financial system” or helped the US “weather the storm.” Bernanke did NO such thing. You could train a chimpanzee to hit the “print money” button at the Fed every-time the Fed phone rings with a Wall Street number and get the same results. To date, Bernanke has spent or put the taxpayer on the hook for some $24 TRILLION in bailouts, lending windows, and off balance sheet arrangements.
AND HE’S FIXED NOTHING.
Banks remain insolvent (if you marked their assets at market value, they’d all wipe out equity in a second), mortgages remain underwater, hundreds of thousands of Americans continue to lose their jobs every month, foreign investors grow increasingly distrustful of the dollar, and the financial system continues to have multiple black swans… all of which could bring about another CRASH.
Indeed, anyone looking to proclaim Bernanke as a savior should review the below video which shows that the guy DIDN’T HAVE A CLUE about the financial system/ economy from 2005-2007. Just click on the below image to watch (video should load in your Internet Browser). Prepare to see an Ivy-league educated guy who’s in charge of our monetary system NOT see the biggest housing bubble in US history OR the worst financial crisis since the ‘30s (an era on which he is an alleged expert).
Video of Bernanke’s mistakes:
However, to focus on Bernanke’s incompetence is to overlook his culpability in destroying Americans’ wealth. In the last 12 months alone, the man has committed perjury (he lied under oath about no longer monetizing debt), embezzlement ($24 trillion gone to banks at least $9 trillion of which no one, not even the head of oversight at the Fed, kept track of), fraud (any proclamation of green shoots or recovery is fraud), corruption (forcing Bank of America to buy Merrill Lynch), and more.
It would, in fact, be no exaggeration to say that Ben Bernanke is a financial criminal on a scale that makes Bernie Madoff look like Mr. Rogers. Madoff ripped off $50 billion. Bernanke is currently destroying the middle class in the US, trashing our currency, worsening EVERY Americans’ quality of life, and erasing any hopes of retirement for millions of Boomers.
In simple terms, Bailout Ben, in a mere year and a half, has overseen the destruction of 30% of US household wealth (from a housing and stock bubble he FAILED to see coming while working under Greenspan). He has yet to do a single thing to protect the average American or the dollar, but instead has opted to funnel trillions of taxpayer dollars over to Wall Street so that Goldman Sachs and friends could claim they’re not insolvent and pay themselves RECORD bonuses.
Indeed, Bernanke has re-created late 2007: the time when stocks went up day after day after day on lower volume and no fundamentals. Indeed, if I had to summate the entire market rally since July in one sentence it would be: insane euphoria and discounting of Fed pumping. The 2007 reference is not mere whimsy either.
Insider selling is at its highest ratio to insider buying since October 2007. The Relative Strength Index for the market recently hit levels we haven’t seen since October 2007. Corporate debt issuance is at October 2007 levels (companies issue as much debt as they can when stocks are up). 36% of investors are bullish and 24% bearish: a gap we haven’t seen since… October 2007.
Bernanke has literally re-created the sentiment of late 2007: a time when fundamentals didn’t mean a thing.
And that didn’t end well.
Folks, the US stock market is an enormous house of cards propped up by the biggest bubble-blower in history. Fundamentals have NOT improved, the economy continues to collapse (regardless of the GDP accounting gimmicks they use to claim we’re out of the recession), and stocks are at least 20-30% overvalued.
This mess will come unraveled. And it won’t be long…

by Graham Summers
Originally posted Sep 1, 2009
www.gainspainscapital.com

AS STOCKS CONTINUED TO RALLY into September, one has to ask one’s self, “just who’s buying this rally?” The answer?

Computers and no one else. I’ve written extensively about the computer trading programs that are dominating this market. All told, High Frequency Trading Programs (HFTPs) control 70% of trading volume on the NYSE.

However, at this point, five stocks (yes only five) account for 40% of the trading volume on the market. Those five stocks: Citigroup, CIT Group, Fannie Mae, Freddie Mac, and AIG. Think about that, five stocks out of several thousand, are accounting for 40% of ALL trading.

And which five are they?

Five that are virtually guaranteed to be propped up by the government in one way or another (CIT indirectly through Goldman and other government-aligned groups). This summates today’s market like nothing else: folks are ONLY trading the investments that they know are on life support from the government.

That metaphor extends to the entire economy. Nearly 20% of incomes come from the government. More than 34 million Americans are on food stamps. This will continue. The government will extend unemployment and every other short-term “fix” it can. But it won’t do ANYTHING to create real job growth.

The life support metaphor extends to the financial system as well. The Fed has extended TRILLIONS to support virtually everything out there. Here’s a brief list of some of the more major items:

The Federal Reserve cutting interest rates from 5.25-0.25% (Sept ’07-today)
Bear Stearns / the Fed taking on $30 billion in junk mortgages (March ’08)
The Fed opens up various lending windows to investment banks (March ’08)
The SEC proposes banning short-selling on financial stocks (July ’08)
Hank Paulson uses the blank check with Fannie/ Freddie spending $400 billion in the process (Sept ’08).
The Fed takes over insurance company AIG (Sept ’08) for $85 billion.
The Fed doles out $25 billion for the auto makers (Sept ’08)
The Feds kick off the $700 billion Troubled Assets Relief Program (TARP) with the Government taking stakes in private banks (Oct ’08)
The Fed offers to buy commercial paper (non-bank debt) from non-financial firms (Oct ’08)
The Fed offers $540 billion to backstop money market funds (Oct ’08)
The Feds agree to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
$40 billion more to AIG (Nov ’08)
Feds agree to back up $140 billion of Bank of America’s liabilities (Jan ’09)
Obama’s $787 Billion Stimulus (Jan ’09)
Fed announces its plans to buy $300 billion of Treasuries (Mar ’09)

Most if not ALL major banks, the stock market, the debt market, and more are on Fed life support right now in one form or another. Take this life support away, and you have a full-scale collapse. I’m talking about 300 on the S&P 500 and 3,000 on the Dow. And what a life support it is:

sep012009_1

The above chart is what you get when you throw trillions (literal trillions) at the financial system. But does throwing money around create sustained recovery? NOPE. I’ve often railed that the market is discounting an economic recovery that does not exist. However, I may have been wrong… at least in terms of what the market is discounting.

Today, I would argue that the market is discounting Ben Bernanke’s “juicing” of the system. The rise from 666 to 1,033 was the market announcing “this guy is going to throw as much money as he can at the crisis and it’s going to flow into the market.” This is a liquidity rally driven by non-thinking computer programs, not a rally based on fundamentals.

Speaking of which…

I’ve watched with first amusement, then disgust, and ultimately outrage as various pundits proclaimed Bernanke’s efforts “saved the financial system” or helped the US “weather the storm.” Bernanke did NO such thing. You could train a chimpanzee to hit the “print money” button at the Fed every-time the Fed phone rings with a Wall Street number and get the same results. To date, Bernanke has spent or put the taxpayer on the hook for some $24 TRILLION in bailouts, lending windows, and off balance sheet arrangements.

AND HE’S FIXED NOTHING.
Banks remain insolvent (if you marked their assets at market value, they’d all wipe out equity in a second), mortgages remain underwater, hundreds of thousands of Americans continue to lose their jobs every month, foreign investors grow increasingly distrustful of the dollar, and the financial system continues to have multiple black swans… all of which could bring about another CRASH.

Indeed, anyone looking to proclaim Bernanke as a savior should review the below video which shows that the guy DIDN’T HAVE A CLUE about the financial system/ economy from 2005-2007. Prepare to see an Ivy-league educated guy who’s in charge of our monetary system NOT see the biggest housing bubble in US history OR the worst financial crisis since the ‘30s (an era on which he is an alleged expert).

Video of Bernanke’s mistakes: http://www.youtube.com/watch?v=HQ79Pt2GNJo

And another: http://www.youtube.com/watch?v=UaghKGcYkx8&feature=related

However, to focus on Bernanke’s incompetence is to overlook his culpability in destroying Americans’ wealth. In the last 12 months alone, the man has committed perjury (he lied under oath about no longer monetizing debt), embezzlement ($24 trillion gone to banks at least $9 trillion of which no one, not even the head of oversight at the Fed, kept track of), fraud (any proclamation of green shoots or recovery is fraud), corruption (forcing Bank of America to buy Merrill Lynch), and more.

It would, in fact, be no exaggeration to say that Ben Bernanke is a financial criminal on a scale that makes Bernie Madoff look like Mr. Rogers. Madoff ripped off $50 billion. Bernanke is currently destroying the middle class in the US, trashing our currency, worsening EVERY Americans’ quality of life, and erasing any hopes of retirement for millions of Boomers.

In simple terms, Bailout Ben, in a mere year and a half, has overseen the destruction of 30% of US household wealth (from a housing and stock bubble he FAILED to see coming while working under Greenspan). He has yet to do a single thing to protect the average American or the dollar, but instead has opted to funnel trillions of taxpayer dollars over to Wall Street so that Goldman Sachs and friends could claim they’re not insolvent and pay themselves RECORD bonuses.

Indeed, Bernanke has re-created late 2007: the time when stocks went up day after day after day on lower volume and no fundamentals. Indeed, if I had to summate the entire market rally since July in one sentence it would be: insane euphoria and discounting of Fed pumping. The 2007 reference is not mere whimsy either.

Insider selling is at its highest ratio to insider buying since October 2007. The Relative Strength Index for the market recently hit levels we haven’t seen since October 2007. Corporate debt issuance is at October 2007 levels (companies issue as much debt as they can when stocks are up). 36% of investors are bullish and 24% bearish: a gap we haven’t seen since… October 2007.

Bernanke has literally re-created the sentiment of late 2007: a time when fundamentals didn’t mean a thing. And that didn’t end well.

Folks, the US stock market is an enormous house of cards propped up by the biggest bubble-blower in history. Fundamentals have NOT improved, the economy continues to collapse (regardless of the GDP accounting gimmicks they use to claim we’re out of the recession), and stocks are at least 20-30% overvalued.

This mess will come unravelled. And it won’t be long…

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