Timely Ramblings On GM, Program Trading And The Demise Of Wall Street
I wrote last week about program trading playing a large part in this rally. And how it was shoving GM stock up for huge gains when bankruptcy and common share obliteration was likely just days away. On Monday before the market opened, GM declared bankruptcy. Common shares of GM are now essentially worthless under their reorganization plan. Yet, if one would have bought GM shares early Monday morning, they would have doubled their money to nearly $1 a share by mid day. I just have to giggle. Wall Street has gone mad. But it should be of no surprise. It was their madness that required $12 trillion of our money to save us from these very people. Or so we are told.
One must remember that futures driven rallies also involve a fair amount of gamesmanship. As we have seen for quite some time. If the economy is sound, money is flowing into the cash markets. Traders, ie gamblers, are bouncing the markets at the open as we saw on Monday with the market up 200 points soon after the open. Remember though, that the market has rallied should be of no surprise with Wall Street awash in our money. It allows them to start gambling in markets again just as they were doing up until this crisis stopped them.
Obviously any time Wall Street can rally the market they will. But, are there also other factors driving this rally. It should be apparent that the bond markets aren't necessarily a friendly place to be right now. At least for corporations attempting to issue new debt. First there is competition for limited capital with government issuances. Second Treasuries are backing up and that means higher yielding corporate bonds aren't very appealing as an issuance vehicle to weakened financial firms. (That's being kind. How is Citi, as an example, going to repay debt issued at 8-10% when their loan spreads are substantially less than that? They can't. So they must gamble to make up the spread. And pray they are successful. That's why oil prices and financial markets are once again exhibiting tremendous lack of regard for risk. At your expense of course.) It's also why many are issuing more stock.
So, could Wall Street possibly be driving equities higher in order to be able to successfully issue more shares in lieu of more debt? Debt to pay back the TARP? Sure they could. And that would be par for the course. I don't think it is a primary driver but we have been writing on here for years that these firms are trading against their clients and the American people in financial markets. It may be really hard to believe but these firms truly care little about you and me. All they need is our savings so they have plenty of money to gamble with. The money these firms have made trading far outweighs any fees they make running your money. Do you think Goldman Sachs really cares about a client that may bring in a few thousand dollars a year in fees when they can make tens of billions of dollars trading oil? Effectively stealing from society by doing so. So, in this liquidity-driven rally, do we see Wall Street profligacy back in play? Monday after the close American Express and JP Morgan announced new stock offerings to raise capital to pay back the government. How much easier is it to raise that money with their stocks at current levels instead of when they were all headed for zero just a few months ago? By the way, all of this new supply of stock is really good for the market. Just watch. You'll see.
I'll slide a final comment in before closing. This crisis is still metastasizing. ie, The patient (the global economy) is getting sicker by the day. There are no debates on whether this is a bear market rally or a new bull market. There is only a lack of lucidity and truth amongst those who believe this crisis has passed. We wrote on here a month or so ago that the next major low for stocks could be more than a year away. As we wrote stocks could generally trend higher for quite some time. Or, given the tremendous strains on the global financial system, we could see a major correction soon. None of this has any impact on truth. I didn't write that we were going to see liquidity shocks or a credit crunch when the living world had never even heard of those terms because I gleaned any useful information from the stock market or the swill fed to us by the financial media.
I think some people are losing their marbles because of price action in many financial markets. Someone sent me a link yesterday from a well-followed blogger, one who has been very bearish, who wrote this week that the global economy could be overheating. You have got to be kidding me. The only thing overheating is my spaghetti leftovers in the microwave. And hopefully the public's enthusiasm for constructive economic change.
As major Wall Street firms are in a mad rush to return the TARP money, and Washington is sitting on its hands rather than deal with true market reform, I now believe there is a reasonable probability all major Wall Street firms returning the TARP money will ultimately fail. Fail is a broad word. Fail could mean forcibly broken up after future crises or could mean just plain fail given the enormity of resources to save these firms from future crises. I realize this may sound absolutely ridiculous but is it? We have already seen that these monopolies are cumulatively the same entity acting in unison. ie, There is no diversity in counterparty exposure to risk, in strategy or execution. One could easily look at all of these firms as divisions of the same company from a risk profile. Because of that lack of diversity in strategy or exposure to risk, there is no safety in any counterparty. They are all lobbing the badminton shuttlecock back and forth in a great scheme that I believe is going to fail - if one fails, they all either fail or all must be bailed out. Again. Let's be very clear. Every one of these firms would be gone today were it not for government handouts to either them directly or their counterparties. As Wall Street firms continue to engage in completely irresponsible financial activities, very destructive forces are continuing to build on their balance sheets, in their strategies and in the economy. Yet it is apparent most banksters believe they have passed this crisis with their terrorist tactics of stealing money from the American people in a moment of fear. Now with their anxious desire to give back TARP money, there will be absolutely no future political will (because politicians will be booted out of office by the people) and little Federal Reserve ability to shoot trillions of more bullets to save them should another crisis arise at some time in the future. While it is true the Fed's balance sheet is theoretically limitless, the market demands limits. And, at some point they are going to be tested.
In other words, I believe the market could very well resolve substantial aberrations to the economy that politicians have no desire to address - amongst other things that being Wall Street. And that lack of desire has nothing to do with what is best for the American economy or the people our government is supposed to represent. It is purely because of Washington's reliance on Wall Street money for their own personal gain and an arrogance built up over a generation of failed ideology. So while many are telling us this crisis has passed, I now believe we could actually see the failure of every major Wall Street firm before this environment resolves itself. It's not a prediction. Just an observation that I believe demands substantially more concern than anyone seems to be willing to consider. Park that notion away for a while as we watch the global economy continue its journey down the path of unrelenting and uncontrollable change.
One must remember that futures driven rallies also involve a fair amount of gamesmanship. As we have seen for quite some time. If the economy is sound, money is flowing into the cash markets. Traders, ie gamblers, are bouncing the markets at the open as we saw on Monday with the market up 200 points soon after the open. Remember though, that the market has rallied should be of no surprise with Wall Street awash in our money. It allows them to start gambling in markets again just as they were doing up until this crisis stopped them.Obviously any time Wall Street can rally the market they will. But, are there also other factors driving this rally. It should be apparent that the bond markets aren't necessarily a friendly place to be right now. At least for corporations attempting to issue new debt. First there is competition for limited capital with government issuances. Second Treasuries are backing up and that means higher yielding corporate bonds aren't very appealing as an issuance vehicle to weakened financial firms. (That's being kind. How is Citi, as an example, going to repay debt issued at 8-10% when their loan spreads are substantially less than that? They can't. So they must gamble to make up the spread. And pray they are successful. That's why oil prices and financial markets are once again exhibiting tremendous lack of regard for risk. At your expense of course.) It's also why many are issuing more stock.
So, could Wall Street possibly be driving equities higher in order to be able to successfully issue more shares in lieu of more debt? Debt to pay back the TARP? Sure they could. And that would be par for the course. I don't think it is a primary driver but we have been writing on here for years that these firms are trading against their clients and the American people in financial markets. It may be really hard to believe but these firms truly care little about you and me. All they need is our savings so they have plenty of money to gamble with. The money these firms have made trading far outweighs any fees they make running your money. Do you think Goldman Sachs really cares about a client that may bring in a few thousand dollars a year in fees when they can make tens of billions of dollars trading oil? Effectively stealing from society by doing so. So, in this liquidity-driven rally, do we see Wall Street profligacy back in play? Monday after the close American Express and JP Morgan announced new stock offerings to raise capital to pay back the government. How much easier is it to raise that money with their stocks at current levels instead of when they were all headed for zero just a few months ago? By the way, all of this new supply of stock is really good for the market. Just watch. You'll see.
I'll slide a final comment in before closing. This crisis is still metastasizing. ie, The patient (the global economy) is getting sicker by the day. There are no debates on whether this is a bear market rally or a new bull market. There is only a lack of lucidity and truth amongst those who believe this crisis has passed. We wrote on here a month or so ago that the next major low for stocks could be more than a year away. As we wrote stocks could generally trend higher for quite some time. Or, given the tremendous strains on the global financial system, we could see a major correction soon. None of this has any impact on truth. I didn't write that we were going to see liquidity shocks or a credit crunch when the living world had never even heard of those terms because I gleaned any useful information from the stock market or the swill fed to us by the financial media.
I think some people are losing their marbles because of price action in many financial markets. Someone sent me a link yesterday from a well-followed blogger, one who has been very bearish, who wrote this week that the global economy could be overheating. You have got to be kidding me. The only thing overheating is my spaghetti leftovers in the microwave. And hopefully the public's enthusiasm for constructive economic change.
As major Wall Street firms are in a mad rush to return the TARP money, and Washington is sitting on its hands rather than deal with true market reform, I now believe there is a reasonable probability all major Wall Street firms returning the TARP money will ultimately fail. Fail is a broad word. Fail could mean forcibly broken up after future crises or could mean just plain fail given the enormity of resources to save these firms from future crises. I realize this may sound absolutely ridiculous but is it? We have already seen that these monopolies are cumulatively the same entity acting in unison. ie, There is no diversity in counterparty exposure to risk, in strategy or execution. One could easily look at all of these firms as divisions of the same company from a risk profile. Because of that lack of diversity in strategy or exposure to risk, there is no safety in any counterparty. They are all lobbing the badminton shuttlecock back and forth in a great scheme that I believe is going to fail - if one fails, they all either fail or all must be bailed out. Again. Let's be very clear. Every one of these firms would be gone today were it not for government handouts to either them directly or their counterparties. As Wall Street firms continue to engage in completely irresponsible financial activities, very destructive forces are continuing to build on their balance sheets, in their strategies and in the economy. Yet it is apparent most banksters believe they have passed this crisis with their terrorist tactics of stealing money from the American people in a moment of fear. Now with their anxious desire to give back TARP money, there will be absolutely no future political will (because politicians will be booted out of office by the people) and little Federal Reserve ability to shoot trillions of more bullets to save them should another crisis arise at some time in the future. While it is true the Fed's balance sheet is theoretically limitless, the market demands limits. And, at some point they are going to be tested.
In other words, I believe the market could very well resolve substantial aberrations to the economy that politicians have no desire to address - amongst other things that being Wall Street. And that lack of desire has nothing to do with what is best for the American economy or the people our government is supposed to represent. It is purely because of Washington's reliance on Wall Street money for their own personal gain and an arrogance built up over a generation of failed ideology. So while many are telling us this crisis has passed, I now believe we could actually see the failure of every major Wall Street firm before this environment resolves itself. It's not a prediction. Just an observation that I believe demands substantially more concern than anyone seems to be willing to consider. Park that notion away for a while as we watch the global economy continue its journey down the path of unrelenting and uncontrollable change.
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