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« Santa Rally Gone in Three Days UPDATED | Main | Neely Joins the January Club, Calls the Top »

Sunday, January 24, 2010


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Anyone following the wave count on the DXY?

Has the rally off the Oct 26 low ended?

Or, are we in a 3 of 3 situation?

Jeff Clark



At the centerpiece of Obama's Banking Reform and the "Volker Rule" is his claim that Banks that engaged in "proprietary trading" caused the Credit Crisis, along with Banks that owned hedge-funds and were involved in private equity deals.

First off, to my knowledge there is only ONE single hedge fund owned by a Bank, and that would be Black Rock Partners, which is owned by BofA after their shot-gun "wedding" with Merrill via the Fed. So right there, you know that both Volcker and Obama are simply spewing Populist ideology that is not based in anything factual.

Quite frankly, I find their main assertion that "proprietary trading" was the cause of the Credit Crisis to be downright laughable. In fact, it makes Volker look awful silly in my opinion. Not a single major securities firm or bank failed due to prop-trading during the past several years. Moreover, nothing in "Volkers" Rule and the Banking Reform that was presented last week would have prevented the collapse of AIG. Notice that the mortgage conduit... the securities underwriting side of the business ( securitization and packaging ) is completely and conveniently ignored by the Volker Rule. Hmmmm...

Also notice that during Obama and Volker's press conference last week there was not one single mention of Fannie Mae or Freddie Mac, let alone the "Commodity Futures Modernization Act of 2000" and the need to get credit default swaps, structured finance products, and all securitized products to trade on an exchange and cleared through a clearing house with SEC oversight.

Incidentally, Geithner's been working on this, but he knows that another $400-$500 BILLION would be needed to make Fannie and Freddie viable again and he knows damn well that the political sentiment would NOT support another financial service industry "bail-out". Thus, he's in a "holding" pattern until the Dems get blasted in the mid-term elections and Obama needs to use him as an escape goat . . . and cans him.

Again, it's downright hilarious to me that according to Volker and Obama the main ingredient of the Credit Crisis was "proprietary trading". My guess is that they don't even understand what "proprietary trading" is.

If that's the centerpiece of Volcker's Banking Reform, he has no credibility in my book. Truly a great man??? I beg to differ. Given what I saw presented last week, he's in fact downright laughable.


Michael, great points and devastating to Obama's new-found populism, It is "Paper Populism" to pick on a non-existent problem. Picking on just prop trading, however, is not from Volcker. He has been speaking out for months and his indictment is much broader. Obama just cherry-picked it. Either Obama is not serious or he is not well-informed. Or both.

So far this week after one day banging on bankers Obama has seen to go back towards the Left. He seems unlikely to triangulate to the center as Clinton did. More like he flops around for a while seeking a message that resonates.



As you might recall, Obama started up his Populist Bank Bashing during the month of February 2009 and the markets "cratered" on his misguided Populist tenor until Buffett or Soros must have sat down with him and told him that he's gonna need the BANKS if the economy is ever going to come out of the Recession.

I'm not sure if he's being dishonest with the American people or is simply misinformed and/or ignorant on the issue.

But the fact that he has fallen back to the same kind of Populist bank "bashing" from last February just two days after the Massachusetts election is quite telling, in my mind.


With all due respect to Mr. Volcker I do not understand the rationale of appointing a famous inflation fighting octogenarian when the problem is deflation. Yesterday's man fighting yesterday's war. The Fed might be just as well served by the appointment of the re-animated corpse of William McChesney Martin Jr.


Eliminating those who may be interested in taking the other side of the trade should set up a big move down the road. Much like eliminating short selling. The question is in which direction.


I'm a little bit surprised at all of the bank support on this board.

It seems to me that Volcker's position has been stated many times. Banks, the ones with our deposits and government guarantee should lend money at a profit as they have for most of the last century.

Folks that create instruments to confuse people, hide risk and bribe rating agencies, should do so without depositors money and tax payer guarantees.

What is the big deal????

If these businesses are so great, why do they need a guarantee from the tax payer?????

If it means they will no longer be able to slice and dice a 750 k$ loan to a guy in prison so that he can buy a house in California, well I know a few towns in Norway that will be pretty happy about that.

Let's get GS's lips off the hind tuber.




Winston would be pleased:

"January is the god of beginnings and endings, so we seem to be at not the end, nor the beginning of the end, but the end of the beginning of the Greater Depression that is about to unfold. If you believe in Prechter and his devastating P3 wave down, this is the beginning of the end of equities as well."

You sound a bit dour. Is the top in?

As a side bar, I just finished up 3 days of meetings last week (mostly professionals, 125 to 150 k$ base I'd say). Every one I talked to planned to save most of their money this year. No big purchases, no exotic trips. Most plan to work this year until they make their numbers. The mood really fit with your summer of disillusionment. I'd expect these folks to jump the gun a bit, and it appears they have.



If you could just bring one graph to a meeting on what is wrong with our country, this one would have to be it:

We are going to go broke.




There are 600 Banks that accepted TARP money, yet Obama only wants to TAX a small handful of the largest money center ones. I find this totally inconsistent, especially when the likes of a Goldman has already returned the taxpayers money with a return that comes out to a 23% annualized profit. Obama keeps on chanting "We Want Our Money Back!" yet he doesn't seem to be asking General Motors or Chrysler for the BILLIONS that we have given them, does he?

Again, Volker's proposal and his attack on "proprietary trading" which is essentially market-making and facilitating the execution of PROFESSIONAL CUSTOMER orders is a joke. Contrarty to what Obama and Volker presented in their speech late last week, facilitating customer trade is not what helped cause the Credit Crisis.

I would strongly suggest that any buy side firm be it a mutual fund, a pension fund, an asset-allocator, or a hedge-fund that calls up the equity derivatives desk of a major investment bank wanting exposure via a certain asset class and asking the trading desk of that I-Bank to make a market and facilitate the exposure that the PROFESSIONAL CUSTOMER is seeking, is in now way, shape, or form a process that should be looked upon as "confusing".

On another note, no where in any of Obama's presentation of Banking Reform is there any mention of Fannie, Freddie, or Congress having created the very legislation that allowed credit default swaps to trade unregulated, not on an exchange, or cleared through a clearing house.

Obama's Populist "rant" is getting a bit old.


Hock, top is likely in. The market would have to go back above the lower trendline and stay there to make this a false break. I expect Monday to be up, and probably up for a couple of days. The market drop will be used as a reason to reconfirm Bernanke. Let that little drama play out and we shall see if this market can go back on trend.



All I want is a playing field where fluck-ups can fail without some peckerhead running around screaming that the sky will fall in. If you lend money, your livelihood should depend on getting paid back. What a novel concept.

Fannie and Freddie are a plague. I'm with you on the autos also. While I drive a GM now, my answer is never again.



The other interesting coincidence is that 19th appears to be a good reference date for the crash (19th Oct 87, 19th July 2007, 19th Jan 2010).

Mr. Panic

In 1990 the market topped on the first day and dropped to the end of February. (It later made a higher peak in July and dropped to the end of the year similar to 2000). 1990, like 2010 was both a year ending in "0" and the second year of a presidential cycle both very negative years for the stock market. 1970 and 1980 both saw lows for the year made by mid-year. In 1980 the low was made in late April. So I guess in the more constructive scenario, the market can bottom by May and then rally into 2012 ala the 70s or it can take the devastating Prechter scenario and continue to collapse into 2011 following an intervening summer bounce.

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