Tuesday, March 30, 2010

Elephants in the Womb

'Ask yourself whether the dream of heaven and greatness should be waiting for us in our graves - or whether it should be ours here and now and on this earth.' -Ayn Rand

'I may be going to hell in a bucket, babe, But at least I'm enjoying the ride.'
-Grateful Dead

'And the LORD said to him, Go through the midst of the city...and set a mark on the foreheads of the men that sigh and that cry for all the abominations that be done in the midst thereof. And to the others he said in mine hearing, Go ye after him through the city, and smite: let not your eye spare, neither have ye pity.'
Ezekiel 9:4-5

Sighing and crying it is then!

Doing a quick peek at the WSJ, FT and Barrons that had stacked up while on holiday for a week, one wonders why there isn't a Comic Code Authority regulating same, for their content is clearly inappropriate for more impressionable readers.

The pablum narrative is certainly striking up the band; banks returning to profitability, GDP ramping, and the consumer spending, as all signs of a V-shaped, scratch that, nascent, scratch that, oxymoronic jobless recovery.

Ah the banks. Soon the debate will fall on the continuum of a double-dip caused by the counterproductive populism of bankster bashing versus the political palliative of misdirection through scapegoating. Like most debates in today's public arena, the magician's ability to get folks to ask the wrong questions belies the need for coherent answers.

The name of the real game is this : 'Failure to liquidate the insolvent banksters has led to the liquidation of a large part of the productive economy.A taxpayer financed bailout of rich folks' bad speculative bets has resulted in zombie banks and zombie customers... a fiscal tide that lifts no boats.' (AM Rule #7)

At no time do their hands leave their arms folks; the middle class for their next trick as the 'vanishing bird' smashed at the bottom of the now empty cage.

How smashed you ask?

Well turn the page back to ancient history, say April 12, 2009, when the FT reported: 'Many, including the IMF, expect total global credit losses to approach $4,000bn as the economic slowdown means that more traditional forms of lending become toxic. Assuming banks account for three quarters of losses, and they have already torched $915bn, according to Bloomberg, that equates to 14-odd years of revenues.'

It was around this time that the Federales proclaimed the writedowns will be discontinued until morale improves.

And yet much like the old chestnuts of 'page views not profits', and 'deficits don't matter', the kicking the can , ostrich-arsed, 'don't look at the marks behind the curtain' approach won't and can't change the facts on the ground.

That truth being the banksters are still too bankrupt too go broke.

How broke you ask?

Here's a real simple example. Consider just the off-balance QSPE of three of the too-big-to-jail banks:

Smells Fargo

Total Qualifying Special Purpose Entities(09/30/09): $1,796,209,000,000
Total On Balance Sheet Assets(Grant's 03/19/10): $1,262,354,000,000
Total Tier 1 Capital as a % of QSPE : 5.2%


Total Qualifying Special Purpose Entities(06/30/09): $828,300,000,000
Total On Balance Sheet Assets(Grant's 03/19/10): $1,856,646,000,000
Total Tier 1 Capital as a % of QSPE : 15.3%

J.P. Morgan

Total Qualifying Special Purpose Entities(06/30/09): $574,000,000,000
Total On Balance Sheet Assets(Grant's 03/19/10):$2,031,989,000,000
Total Tier 1 Capital as a % of QSPE : 23.2%

So in other words, not counting the VIEs (Variable Interest Entities), which are also held off-balance, if Smells Fargo's QSPE's are, in actuality, worth less than 94% of par then they have no Tier 1 Capital, using the 'fingers and toes' accounting method. Considering that Florida and California is at least 20% of their book, do we need to elaborate further? A mark on Citigroup's QSPE of 85% or less and J.P. Morgan's of 77% or less and it's Tier None for them also. Pay no attention to the FDIC marks behind the curtain folks! Securitizations are not like snowflakes because each are unique but rather because they all melt fast when the heat of observation is applied.

And the other two 'news items', GDP ramping and the consumer spending, implying 'champagne wishes and caviar dreams'? In ancient times the headline was GDI not GDP. Why? Well because GDI counts the total income in the economy while GDP measures the output of the economy as the sum of expenditures — consumption, plus investment plus government spending plus net exports.

WSJ blog
By Justin Lahart

In theory, the two measures should equal one another, in practice they don’t quite, and Mr. Nalewaik, a Fed Economist presenting a paper Friday at the Brookings Panel on Economic Activity, argues that GDI is the better of the two.

He finds that when the Commerce Department’s Bureau of Economic Analysis revises its national income and product accounts, GDP figures move more closely inline with GDI. GDI also appears to have a stronger correlation with other economic indicators, and its recent movement around turning points suggests it more closely tracks the economy.

He notes that GDI fell far more sharply in the teeth of the recession, dropping at a 7.3% annual rate in the fourth quarter of 2008, and 7.7% in the first quarter of 2009. GDP, in comparison, fell by 5.4% and 6.4%. Moreover, while GDP showed the economy began to grow in last year’s third quarter, GDI showed it continued to contract.

(Zip-a-dee-boohah Mr. Grant. -AM)

(Fourth-quarter GDI figures aren’t yet available.)

“[T]he latest downturn was likely substantially worse than the current GDP… estimates show,” he writes. “Output likely decelerated sooner, fell at a faster pace at the height of the downturn, and recovered less quickly than is reflected in GDP… and in conventional wisdom.”

'Mr. Hand's strong dollar policy is the chimera of currency debasement masquerading as America's wealth exporting machine that is regularly promulgated by our leaders as an exceptional example of America's resiliency.' (AM Rule #5)

But wait what about the savings rate decreasing, it's all good right?

Only one glitch, incomes did not increase.

From the venerable Peter Atwater at Minyanville:

'As I type, mortgage delinquencies exceed 14% while credit card delinquencies are closer to 6%. And owner-occupied mortgage delinquencies now exceed non-owner-occupied delinquencies. (And, for what its worth, home equity and second mortgage delinquency levels are far below first mortgages.)

Those in the financial-services industry argue that consumers are acting irrationally. Of late, I'm not so sure. I think consumers may, in fact, be acting rationally irrational, making what appear to be the correct decisions for the short term while completely ignoring their long-term consequences.

While likely to make me unpopular within the Beltway, I think a lot of the behavioral change is a function of two new phenomena: the constant vilifying of the banks as well as Washington's seemingly endless desire to facilitate mortgage modifications to underwater mortgage borrowers.

While not suggesting either is right or wrong, both actions invite delinquency if not outright strategic default. And the higher the overall rate of delinquency, the higher the likelihood of some kind of "negotiated" settlement. To mix my metaphors, one quacking goose may be shot, but a cacophony of squeaky wheels will ultimately be greased.

At least, looking at the data, that's what underwater American homeowners are clearly betting.

In the meantime though, the payments that would otherwise be put in the mail to Countrywide and other mortgage lenders, are being used to pay down credit card debt at unprecedented levels and being spent on living expenses including, per a recent Wall Street Journal article, season tickets to Disneyland and Carnival cruises. Call me a skeptic but I don't think it's any coincidence that we've seen an improvement in consumer spending coincident with a rise in mortgage delinquencies.

(And lets insert here, to be clear, that with double-digit unemployment, a significant portion of the reprioritization of payments are out of sheer necessity.)

Consumers are acting rationally irrational.'

Or as previously written on this blog:

'Extend and pretend is the proposed means to mend. Pay no attention to the marks behind the curtain. What ever the banks want to show they show.

The Nancy Capitalists proclaim its' all good, and we all should support that which brings recovery home.

But a storm is being created.

What they fail to realize is that they are corrupting, not supporting the American Dream; through their desire to be prophets they have ceased to be makers of their own fate.

The American Dream is becoming the American Scheme as moral hazard is writ large.

With Mr. & Mrs. America feeling no compunction to walk away from their home if their neighbor does it, with the neverending Federales policy of exalting drunks and punishing the sober, with the phrase 'the whole thing's a Ponzi' being uttered by even the most ardent of conservatives at family functions - life is imitating the arts of the elites.'

OTC derivatives, Build America to expand muni debt capacity(a good idea??), pension shortfalls, are yet more examples of the elephants in the womb.

When wise folks say that you should be your own central bank, are they doing a Barkley? Being your own corporatocracy may be rationally irrational but life liberty and synarchy for all is one hell of a way to go through life son.

On that path most assuredly the devil will be paid his due.

It won't matter until it does.

And when it does...

When we get off Sugar Mountain...

Oh mama!

Thursday, March 18, 2010

Administrative note

Going on holiday abroad.

Will be off the grid for a week.

Fare thee well.

The light that burns twice as bright burns for half as long

'Proud of yourself, little man? Not very sporting to fire on an unarmed opponent. I thought you were supposed to be good. Aren't you the "good" man? C'mon ..... Show me what you're made of.'

Today's FT:

A US bank regulator joined financial executives yesterday in calling for changes to consumer protection rules proposed...

'In every case consumer protection has the edge and will trump safety and soundness and I think that is backwards' said John Dugan, comptroller of the currency,{the bill uses} insufficiently 'preemption', the mechanism where federal regulators overrule state counterparts. Andrew Pincus, a lawyer who has advised the US Chamber of Commerce, argued this week that small business would face a 'significant diminution of credit' if the Dodd bill is made law.

AM here: *@%*@!*$%... Nancy Capitalists in a Sovereign Democracy that are Hell Bent to Seek Rent.(Rule#10)

The Dodd bill, whatever watered-down, beaten-down, version makes it through the captured sausage grinder, most certainly does pose systemic risk. The risk that a credit card application or bill or a mortgage application or statement or any other consumer finance product might, horror upon horror, be written in plain English and be comprised of one or two descriptive pages as opposed to twenty or thirty. A risk to a system held far apart from the system you reside in gentle reader.

What oh what will the banksters do if they are forced to engage in a simple, and shudder, transparent transaction! Why the walls of Jericho would fall upon the cursed consumer!

Analogously what would the banksters and other motley corporate structures do if they weren't allowed to run two sets of books like the Cosa Nostra? What would happen to our fragile nascent recovery if the Oracle of Eccles is not divined as the capo di tutti capi?

The cafones and poveretts, for whom the books are always closed have been told 'col tempo la foglia digelso diventa seta'.

Trust us but don't task us lest you see trust in us lost to your peril, whine the custodes.

WIKI: After his arrest, the mafioso Giovanni Brusca described the ceremony in which he was formally made a full member of Cosa Nostra. In 1976 he was invited to a "banquet" at a country house. He was brought into a room where several mafiosi were sitting around a table upon which sat a pistol, a dagger and an image of a saint. They questioned his commitment and his feelings regarding criminality and murder (despite his already having a history of such acts). When he affirmed himself, Salvatore Riina, then the most powerful boss of Cosa Nostra, took a needle and pricked Brusca's finger. Brusca smeared his blood on the image of the saint, which he held in his cupped hands as Riina set it alight. As Brusca juggled the burning image in his hands, Riina said to him: "If you betray Cosa Nostra, your flesh will burn like this saint."

AM here : The light that burns twice as bright burns for half as long. And Indy, per every real world statistic that you can empirically squeeze out of the pablum narrative toothpaste, it doth appear that the fire is going out.

Wednesday, March 17, 2010

Toil and trouble, a bullisht bubble, the cops at the door? Hey, hey, stock's goin' double!

Up is down.

Black is white.

And if you argue with that they question your patriotism.

That was my favorite little ditty for the Bush administration. As the pablum narrative trumpets the madness of cowards (i.e. Nancy Capitalists that socialize the downside and piratize the upside), your humble blogger wonders exactly where did we jump the shark?

Nixon & Carter were certainly bizarre in their own respects but the Reagan administration really seemed to get the bizarro universe ball rolling. Remember Ollie North being willing to do a G. Gordon Liddy? Remember John Poindexter, he of the photographic memory, testifying under oath that he didn't 'recall' or 'remember' 184 times? Remember how ultimately they just blamed a corpse(Casey)?

I'm sure most folks don't have a clue as to what I'm referring to, and if you're a kid in Texas ... most certainly you won't!

Clinton, the kid from Hope, and his whore-mongering buddy Dickie Morris triangulated themselves into reforming welfare and balancing budgets ... perhaps that was the first sign that we had shifted into some alternate plane of political reality. A liberal boomer that leaves a liberal legacy of what ... parental leave?

Incurious George took the 'bizarro universe' to an art form though. Staffing Justice with lawyers from fourth-rate universities, putting wolves in charge of hen houses ( i.e. department heads that had spent their entire life fighting against the regulations they were supposed to now enforce), passing budget busters like Medicare Part D which added oh about 8 trillion in unfunded liabilities to your kids and grandkids, and launching a war in Iraq run with the aplomb of a bong-addicted college liberal. Hey we didn't put up that Mission Accomplished sign, we have no idea how it got there. Democracy is on the march dude!

Yes Bush passed tax cuts and bailed out Wall Street ... fiscal prudence aside, that is what a conservative is supposed to do.

Now to the current president. As a fierce social liberal (and fiscal conservative ... duality of life dontchaknow) well I guess the best I can say that all us social liberals have thus far is a t-shirt that says 'I voted for Barack Obama but I got Barry Dunham.'

An ubiquitous bankster friendly policy from the enabling Federales ... check.

An insurance friendly 'health reform' initiative ... check.

You want to reform the 'health' industry Barry? Public option or forget it. And while you are at it get rid of those 'ask your doctor' commercials. 336 BILLION to the insurance industry over 10 years is porn not reform. Spare us the Chuck Yeager 'defense is a jobs program' antimatter incarnation that the 'health reform' plan is a jobs program. We need wealth reform not some Potemkin health reform. Apply the doctrine of capitalism where it belongs ... liquidating and ring-fencing rich folks' bad speculative bets that if allowed to continue roaming the earth in a zombified state will continue to liquidate the productive economy. Health reform falls under 'promote the general welfare', given your background there is no need to email you the constitution in hopes that you might read it, is there?

Up is down.

Down is up.

And we all know that the Oracle at Eccles has junk in the trunk.

Toil and trouble, a bullisht bubble, the cops at the door? Hey, hey, stock's goin' double!

It won't matter until it does.

And when it does...

Oh mama!

I want the Black French guy I voted for.

Sunday, March 14, 2010

Happy Pi Day, Beware the Ides, Et tu, Brute?... tis sinusoidal time

'Pi Day is celebrated by math enthusiasts around the world on March 14th.
With the use of computers, Pi has been calculated to over 1 trillion digits past the decimal. Pi is an irrational and transcendental number meaning it will continue infinitely without repeating
- piday.org

'Nitpickers please note that originally the Ides of March was not necessarily March 15th but rather the period March 13th to 17th. Later…..Roman calendar makers would save on tablets and papyrus by designating the Ides to occur on the 15th of March, May, July and October. In other months, it was the 13th.'
-Art Cashin

'Gann advised analysts to keep track of the strongest harmonies of the solar fundamental both from the zero point of the vernal equinox and from the zero point of each major pivot, explaining the subject in visual terms by reference to the geometry of the circle. He perhaps left it for his more sophisticated readers to conclude that the division of time periods and price movements into eights in fact related to the properties of the musical octave, to the properties of sound. The same may be said of the importance he attached to the seventh unit of a series, in that it can be held to represent the final tone of a given octave.'
-Alexander Goulden

'The two days on either side of the new lunar month represent most of the positive returns on equity markets for the next four weeks.'
- Macquarie Securities

'We find strong empirical support in favor of a geomagnetic–storm effect in stock returns after controlling for market seasonals and other environmental and behavioral factors. Unusually high levels of geomagnetic activity have a negative, statistically and economically significant effect on the following week’s stock returns for all US stock market indices. {There is} evidence of substantially higher returns around the world during periods of quiet geomagnetic activity.'
-Federal Reserve Bank of Atlanta

'It has been found in a great number of tests that the mean motion of the sun is the correct motion to be observed.'
- Sepharial

The Holy Bible is 'The Book of Books.'
-W.D. Gann

'Robert was a great believer in Astrology because he had found this great science referred to so many times in the Holy Bible. He had made notes as he read the Bible at different times where it referred to Astrology or the signs in the heavens and was thoroughly convinced that the influence of the heavenly bodies govern our lives. Robert knew that the Bible was replete with references that the heavens ruled. He had read where it said: 'Discern the end from the beginning, where Jesus said, "I will judge you in the place of your nativity.'
-W.D. Gann, Tunnel Through the Air

'With a boulder on my shoulder, feelin' kinda older,
I tripped the merry-go-round
With this very unpleasin', sneezin' and wheezin,
the calliope crashed to the ground
Blinded by the light, wrapped up like a deuce, another runner in the night
Blinded by the light
Mama always told me not to look into the eye's of the sun
But mama, that's where the fun is
-Manfred Mann

By Eleanor Laise
March 13, 2010

Mr. Sornette, 52 years old, is the director of the Financial Crisis Observatory at the Swiss Federal Institute of Technology in Zurich, or as he calls it, "the MIT of Europe." Late last year, he launched the bubble experiment by identifying four developing bubbles and forecasting when they'll peak.

His predictions are locked away in encrypted files that can't be altered, to be revealed only when the forecasted bubble peaks have passed, on May 1.

Mr. Sornette says that his observatory can track tens of thousands of stocks, bonds, and other securities. The term "observatory" is also meant to underscore his scientific, quantitative approach to studying bubbles.

Mr. Sornette works with a handful of postdoctoral fellows and senior researchers, sifting through data on an institute supercomputer called "Brutus."

Nassim Taleb, who popularized the term "black swan" to describe extreme events that are highly unpredictable, is well acquainted with Mr. Sornette's work but still doesn't believe that any models can be used to make precise predictions. However, he says that Mr. Sornette's work, which is rooted in disciplines distinct from traditional economic models, "is vastly more useful to me than anything else in economic.

With a Ph.D. in physical sciences, Mr. Sornette worked on methods to predict the rupture of pressure tanks on European Ariane rockets in the early 1990s. He realized that the tanks didn't just rupture without warning. Mr. Sornette was able to identify patterns in acoustic emissions, which are waves produced by stressed materials, that had some predictive power.

Realizing that financial crashes are somewhat like market "ruptures," he became interested in studying market fluctuations. "It was an act of faith" to apply the type of work he was doing on the rockets' tanks to the markets, he says. "You make this stupid analogy, which can sometimes be very productive."

AM here : The productivity of stupid analogies? Roger that.

Over the weekend had the pleasure of an extended conversation with a nationally known smartypants. Suggested to him that if someone had, a couple years ago, told me that one could glean understanding of the markets through the knowledge of the Bible, a guitar, and a sailboat, I would have had a less than cordial retort.

His reply? 'I figured that out early on.'

Lucky him... although have always believed that when the student is ready the teacher will arrive did not expect the coursework to be so challenging... truth would appear to be dynamic not linear and it is a process of unlearning.

To believe that the 'natural law' guides both the flower and the star system, to reconcile that with the bloodied determinism of an entrepreneurial Irishman, is to embrace a thesis that is antithetical.

And yet...

Sacred geometry and fourth dimensional constructs of the markets seem a bit wild until one considers that it was Einstein that postulated the concept of a single spacetime continuum. Einstein's special relativity treats space and time as components of a four-dimensional manifold.

In the Old Testament time was traditionally regarded as a medium for the passage of predestined events. For Einstein, the past is a set of events that can send light signals to the observer, and the future is a set of events to which the observer can send light signals. Light is a wave and a particle.

And fourth dimensional market math? The fourth degree being an angle? What's the big deal with only 4 dimensions when string theory and M theory predict that physical space in general has in fact 10 and 11 dimensions respectively.


So let's revisit Professor's Sornette's epiphany again : 'You make this stupid analogy, which can sometimes be very productive', and let's try to get a little stupid...

Previous postings on this blog have suggested what reverence your blogger holds for the Fractal Man, Professor Mandelbrot. Fractals are objects or quantities that display self-similarity ON ALL SCALES.

It stands to reason then that glimpses of the 'natural law' can then be discerned by observing with one's senses this 'self-similarity'.

Or to quote Ian Fleming, 'Once is happenstance. twice is coincidence. Three times is enemy action.'

Several postings on this blog have examined such 'coincidences' ... here is another:

John Needham's Danielcode theory suggests that fast markets often retrace 29.7%. Now that's certainly an outlier proposition, and if shown empirically would suggest it is not the tail waggin' the dog i.e., working because folks believe it works.

Although the longitudinal data set in support of this retracement is being developed let us suggest it as a theory and see if perhaps there is any fractal or 'self-similarity' existing for this unremarkable 29.7.

29.7 is the orbit of Saturn in earth years. Saturn (referred to by the Ancients as Cronus or Kronos) was the Roman Deity of Time. This is where the term chronology comes from.

The synodial month, the average length of a month, is 29.7.

1335, blessed time in the book of Daniel, when divided by 45 (where 45 is 1/8th of a circle or 45 degrees) is 29.7.

One of Dewey's most common cycles is 2.96 years. Interchangeable per the fungibility of the decimal point in sacred geometry.

The frequency ratio of A as you ascend by a perfect fifth is 27/8 the inverse ratio of 8/27 (29.63%). Frequency has an inverse relationship to the concept of wavelength.

The orbital velocity of Mercury (in astro terms the communicator and trickster, e.g. 'retracement in fast markets') is 29.7 miles per second.

The nearest distance of the elliptical orbit of Pluto to the sun is 29.7 AU.

Do these coincidences mean anything? Maybe not. But consider this. For the majority of market participants, random walk is the holy grail. But this Gospel suggests that the probability of the market movements that have occurred in recent memory, and the movements your humble blogger expects to see in the future, come in at a modest, oh let's see... fingers and toes ... gazillion squared.

Maybe our dearly held assumptions are wrong.

Maybe reality is the tail risk.

Think outside the cave.

Friday, March 12, 2010

These are the voyages of the starship Nancy Capitalism; to explore new outrages, to geek out new strife and new rationalizations, to boldly go ...

'The lights are growing dim Otto. I know a life of crime has led me to this sorry fate, and yet, I blame society. Society made me what I am.'
- Duke (Repo Man)

Motorcycle Cop: Whatcha got in the trunk?
J. Frank Parnell: Oh... You don't wanna look in there.
(Repo Man)

'Sensors show there something's there, Captain.'

'Lehman Brothers' liquidity was a mirage. The firm said in early September 2008 that it had liquidity of $41 billion. The {bankruptcy examiner's} report says it had shrunk to just $2 billion two days later.'
-WSJ Heard on the Street

'People don't drink the sand because they're thirsty. They drink the sand because they don't know the difference.'
-President Andrew Shepherd

'Reading through the thousands and thousands of pages of Valukas' report has proven...quite entertaining. After having first uncovered the Repo 105 accounting gimmick, and E&Y (and, in a normal society, Tim Geithner) coffin nail, we are convinced that this is just the tip of the iceberg, and sure enough, as we read along, more stunners come to light. We will update .... with new discoveries, but for now, we present the episode of the Fenway Tri-Party Repo Market Clusterf%$* ("FTPRMC"), The Part Where Lehman Lied To Its Shareholders, And The SEC Gets The Middle Finger (Again), and the parable of Ben Bernanke's And His Scale Of 0 To 100 Of Systemic F%*$%dupedness.'
-Zero Hedge

These are the voyages of the starship Nancy Capitalism; to explore new outrages, to geek out new strife and new rationalizations, to boldly go where no pablum narrative has gone before.

Chances are if you're reading this post you're also a ZH reader so won't belabor the pins they are currently pushing into the Lehman pablum narrative voodoo doll.

Suffice to say, mistakes were made.

Mistakes, oh gentle reader, that would not be so graciously afforded to us common folk.

You see, if you or I, were to have a small business, with small creditors, and were then perchance to happen upon misfortune, say insolvency, then creating transactions out of whole cloth would not be an accounting gimmick or a balance sheet irregularity...

Verily, you or I, would be welcomed by the stilettos of opposing counsel doing a 'fraudulent conveyance' dance on our collective noggins.

But you see, in the Land of the Elites, the straw man of 'ordinary course of business' is raised up the Nancy Capitalism flagpole. It is, sardonically, a moving argument in the context that fraudulent conveyance has been institutionalized by GAAP, the SEC, the rating agencies, and their enablers.

If only there was some way for us gentle folks to comprehend such meanderings...

March 10, 2010
By Robert Sanders

An analysis of more than 70,000 galaxies by University of California, Berkeley, University of Zurich and Princeton University physicists demonstrates that the universe - at least up to a distance of 3.5 billion light years from Earth - plays by the rules set out 95 years ago by Albert Einstein in his General Theory of Relativity.

By calculating the clustering of these galaxies, which stretch nearly one-third of the way to the edge of the universe, and analyzing their velocities and distortion from intervening material, the researchers have shown that Einstein's theory explains the nearby universe better than alternative theories of gravity.

One major implication of the new study is that the existence of dark matter is the most likely explanation for the observation that galaxies and galaxy clusters move as if under the influence of some unseen mass, in addition to the stars astronomers observe.

Einstein's General Theory of Relativity holds that gravity warps space and time, which means that light bends as it passes near a massive object, such as the core of a galaxy. The theory has been validated numerous times on the scale of the solar system, but tests on a galactic or cosmic scale have been inconclusive.

These tests do not tell astronomers the actual identity of dark matter or dark energy. That can only be determined by other types of observations, such as direct detection experiments.

AM Here : Methinks you get the gist of my jibe. In the shadow banking system, only the occasional direct detection experiment
(bankruptcy examiner's report) can provide the actual identity of the dark matter, the unseen mass, that is exerting its' influence on our observable economic universe.

We all see, and are all experiencing, the distortions from this intervening material.

Nancy Capitalists in a Sovereign Democracy that are Hell Bent to Seek Rent. (AM Rule #10)

To stretch the analogy to a more chilling conclusion, dark matter accounts for the vast majority of the mass in the observable universe. Only future direct detection experiments / bankruptcy examiner reports / Fed Audits will truly tell us how far down the quantum rabbithole we are.

Or in other words , yes Virginia there is no collateral. (AM Rule #4)

Thursday, March 11, 2010

Less Bad is Good until Less Good is Bad or as Barnum would opine...Snap!... you've been had

'Hit the engine
but she ain't turnin'.
We're the same sad story
that's a fact
One step up and two steps back.
-Bruce Springsteen

'Better read it first, for if one drinks much from a bottle marked "Poison", it's almost certain to disagree with one sooner or later.'

'Like strength is felt from hope and from despair.'
-Homer (not Simpson folks!)

'If they can get you asking the wrong questions, they don't have to worry about the answers.'
- Thomas Pynchon

'The Black Swan is a sucker's problem.'
-Nassim Taleb

Addition through subtraction is a solution that ignores the problem.

Let's increase the 'inflation target', let's increase the 'optimal unemployment rate', let's increase the first-time unemployment claims threshold that, hope upon hope, represents underlying job growth...

Anything that falls under 'less bad is good' becomes leading, anything that falls under 'less good is bad' becomes lagging; tis easy to ignore the fleas on the dog if all you trumpet is the hopeful wagging.

Once upon a time, a nationally known smartypants on an island told me that THEY would keep the bulls and bears off balance as THEY went from room to room in the burning building putting out fires.

Truth that.

That is what the code word 'trading range' really means.

Analysts opining that we all will be 'surprised by the market's strength' is code for the Federales winning, i.e., these folks are embracing the tragedy.

Analysts that suggest a 'crash is inevitable' are pining for reason before farce.

Vice before virtue, farce before reason, the question vexing? Duck or Rabbit Season?

The answer both ... in due time.

Hobbes first law of nature is that every man ought to endeavour peace, as far as he has hope of obtaining it; and when he cannot obtain it, that he may seek and use all helps and advantages of war.

The dollar is the bullet, the Fed is the weapon. The key to the gun cabinet is for Members Only.

At this point at the end of the trend - 2009 low besting the 2002 low breaking a line of lower lows from 1897 up- our prosperity is now in the hands of Fleck's battle of unarmed combatants (currencies) where the U.S. is the dealer (reserve), at least for the near term.

We speak of a mild outcome to all this, a new normal, as we stuff the pig on the scale of fate. We are so far down the rabbit hole Alice, so arse over tit, that it is quite plausible that the power law being applied here is masquerading mild as wild as well as its' converse.

What if the mild prognostication is deflation or hyperinflation with either A cascading to B or B cascading to A?

What if the Black Swan is just, hope upon hope, muddling through?

Wednesday, March 10, 2010

A picture shrieks a thousand slurs ; this reversion ain't just mean, 'tis sadistic

'I want a doctor to take your picture
So I can look at you from inside as well
I'm turning Japanese
I think I'm turning Japanese
I really think so
-The Vapors

'The price is wrong, bitch!'
-Happy Gilmore

'Time wounds all heels.'
-John Lennon

'Deflation is the midwife of hyperinflation.'
-Anonymous Monetarist

'For a moment there, I thought we were in trouble'
-Butch Cassidy

'In the long run we are all dead.'
-John Maynard Keynes

Holy financial porn Fatman!

The chart above in yesterday's WSJ is as nasty, if not more so, than anything that even Doug Short has put out.

A picture shrieks a thousand slurs; this reversion ain't just mean, 'tis sadistic.

This graphic, double entendre intended, accompanied an article in the Whoa! Shill Journal that featured, the venerable Robert Schiller (no wonder I saw fear in his eyes in his last Bloomberg interview), and some cat who states that 'the market should spend a good portion of time trading below fair value, to match the time it spends trading above fair value.'

Now that's a chilling thought -rather somber fare from the opus of Nancy Capitalism.

If only there was someone who could present a more bullisht picture, some authoritative voice that could offer succor that pitchforks, torches, and wheelbarrows aren't the most appropriate 'stocks' for the long run...

Mr. Siegel I presume?

"My research shows that the common P/E is 18.5" when the economy is coming out of a recession, Siegel says.

The way he looks at it, the market now is trading at about 14.5 times forecast 2010 profits, making it cheap compared with the typical P/E of 18.5.

If stocks rise to 18.5 times profits, the S&P 500 could rise to 1400 this year, a 23% gain from today's level, he notes. "We could easily see 10% to 12% stock returns with low inflation" in future years, he says.

Whew, don't know about you but I feel relieved, Schiller is just calculating PE wrong. No worries!


FEBRUARY 25, 2009
Wall Street Journal

S&P adds together, dollar for dollar, the large losses of a few firms to the profits of healthy firms without any regard to the market weight of the firm in the S&P 500. If they instead weight each firm's earnings by its relative market weight, identical to how they calculate returns on the S&P 500, the earnings picture becomes far brighter.

A simple example can illustrate S&P's error. Suppose on a given day the only price changes in the S&P 500 are that the largest stock, Exxon-Mobil, rose 10% in price and the smallest stock, Jones Apparel Group, fell 10%. Would S&P report that the S&P 500 was unchanged that day? Of course not. Exxon-Mobil has a market weight of over 5% in the S&P 500, while the weight of Jones Apparel is less than .04%, so that the return on Exxon-Mobil is weighted 1,381 times the return on Jones Apparel. In fact, a 10% rise in Exxon-Mobil's price would boost the S&P 500 by 4.64 index points, while the same fall in Jones Apparel would have no impact since the change is far less than the one-hundredth of one point to which the index is routinely rounded.

Yet when S&P calculates earnings, these market weights are ignored. If, for example, Exxon-Mobil earned $10 billion while Jones Apparel lost $10 billion, S&P would simply add these earnings together to compute the aggregate earnings of its index, ignoring the vast discrepancy in the relative weights on these firms. Although the average investor holds 1,381 times as much stock in Exxon-Mobil as in Jones Apparel, S&P would say that that portfolio has no earnings and hence an "infinite" P/E ratio. These incorrect calculations are producing an extraordinarily low reported level of earnings, high P/E ratios, and the reported fourth-quarter "loss."

As the fourth-quarter earnings season draws to a close, there are an estimated 80 companies in the S&P 500 with 2008 losses totaling about $240 billion. Under S&P's methodology, these firms are subtracting more than $27 per share from index earnings although they represent only 6.4% of weight in the index. S&P's unweighted methodology produces a dismal estimate of $39.73 for aggregate earnings last year.

If one applies market weights to each firm's earnings using the same procedure that S&P employs to compute returns, the results yield a more accurate view of the current profit picture.

AM here:Guess we now know the way Siegel 'looks' at it. Couldn't believe this tripe when I first read it. It took all of a few seconds of rubbing a couple of brain cells together to generate the obvious retort. The methodology of computing S&P earnings is only valuable in the context of the constancy of such methodology over a long duration. Taking a snapshot utilizing a different method tells you nothing lest you perform that calculation over the long-term and then compare your snapshot with historical results using the same methodology. In other words using a new methodology to come up with a PE of 20 needs to be understood within the context of using that same methodology to come up with PEs at say historical troughs...

Clearly, Jeremy Siegel is a witless hack.

He should be ashamed of himself as should the WSJ.

Here's a little bit of background on this fella ...

WIKI: Jeremy Siegel was famously bullish in 2000 just as the stock market was collapsing. In a BusinessWeek interview in May 2000 when asked whether valuation measures indicated the stock market was overvalued he replied: {Have we learned anything over the past 50 years? When we compare a 100 years' PE's, we're going through the Great Depression, a banking collapse, and all the rest. Have we learned how to prevent a banking collapse? A Great Depression? I would say, yes, we've had incredible success. Have we been in the longest economic expansion in history? I would say yes. Are earnings of the top companies growing at the fastest rate that they ever have, far faster than the peaks that you mentioned in the past? Yes."}

At the 2006 Berkshire Hathaway annual meeting, Berkshire Vice Chairman Charlie Munger called Siegel "demented" for "comparing apples to elephants" in making future predictions.

Siegel's personal, for-profit website, jeremysiegel.com, is highly atypical among academic professors. In addition, Siegel has not published any peer-reviewed academic works over the past decade.

AM here : Mr. Siegel you are officially in the Anonymous Monetarist Hall of Shame.

Tuesday, March 9, 2010

Phat, Plummed and Cupid is no way to go through strife son

By Kathleen Madigan
March 9, 2010, 7:32 EST

The Small Business Optimism Index lost 1.3 points to 88.0 last month, reported the National Federation of Independent Business in a press release Tuesday. The NFIB noted that only two of 10 components posted gains last month.

The subindex covering expected business conditions dropped 10 points to a -9 reading, and sales expectations dropped three points to zero.

AM here : Zero point Zero? Oh ye quivering throngs of bullisht Nancy Capitalists with liquidity chalices extended, thou doth proclaim that we can bypass the consumer, mayhaps even bypass the small businessperson, but verily can we also bypass reason?

The Demand Restoration Project is not working yet. Your money Mr. Federales has no velocity here for the band of The Hand can only conjure a Potemkin demand. Organic wage growth, absent for the last decade, comes from ... wait for it ... the productive allocation of capital when a free market pins winners and chooses losers. (AM Rule #8)

Phat, Plummed and Cupid is no way to go through strife son.

Failure to liquidate the insolvent banksters has led to the liquidation of a large part of the productive economy.A taxpayer financed bailout of rich folks' bad speculative bets has resulted in zombie banks and zombie customers... a fiscal tide that lifts no boats. (AM Rule #7)

Barry, as one Chicago liberal to another, here's a suggestion. Screw health reform, what we need is wealth reform. Loading up the banks with a trillion meatballs is nothing more than DIP financing for a generational workout. A year after the Devil's Peek (S&P 666) and the banksters are still too bloody bankrupt to go broke? Top-down crisis management has resulted in an obese obscenity poised on a flagpole in a windstorm. And make no mistake Mr. Dunham, it is always brightest before dusk ... the storm is approaching.

The cold hard fact of our age is that the bankrupt ideology of the rich that had greatly succeeded in drafting the inner monologue of regular folks so that they would vote against their self-interests is colliding head-on with a Mr. Market that is a bit pissed off that we've inflated it out of the business cycle for the last quarter century. (AM Rule #6)

Either you're a hero Barry or its' generation zero...

March 08, 2010 6:20 PM
By Byron Wolf

President Obama and Democrats launched a campaign to vilify insurance companies in the final stretch of their health reform effort.

Republicans, meanwhile, pointed out that those very same insurance companies would get huge checks from the government if health reform is enacted.

“(Health Insurers) will keep on doing this for as long as they can get away with it. This is no secret,” the president said. “They're telling their investors this – ‘We are in the money. We are going to keep on making big profits even though a lot of folks are going to be put under hardship,’” the President told supporters at a stop in Pennsylvania today.

HHS Secretary Kathleen Sebelius, meanwhile, wrote to insurance company executives demanding that they justify premium hikes.

Neither mentioned that the Senate health reform bill, which is the basis for Democrats' last best chance at comprehensive reform, would give the insurance companies millions of new customers required by law to buy health insurance. It would also require insurers to cover everyone, regardless of age, gender or pre-existing condition.

To help pay for the new insurance requirements the government would give to people money to buy insurance - $336 billion over the next ten years. That money, ultimately, would have to go to... drum roll... insurance companies.

AM here: The bold pap of a road map exchanged for the insouciance of elites and the Antoinette economy.

And soon coming to the pablum narrative near you, the oft-proclaimed 'counterproductive' populism that will stall the V-Shaped, scratch that, nascent, scratch that, oxymoronic jobless recovery.

Exhibit thyself to a public that may hiss thee, bemoan the solons. Let them eat debt!

Quis custodiet ipsos custodes? said the Roman poet Juvenal. Who will guard the guards themselves?

Why, pronounce our modern day guards, we will. Trust us but don't task us lest you see trust in us lost to your peril.

Don't Task Don't Smell, the central plank of the 'I Can't Believe it's Not Capitalism Plan' has given us Sugar Mountain, where stupidity is cupidity.

Buckle up citizens, the Deadhead Economy awaits on the other side of this black diamond demographic slope.

On the bright side, 2017-2018 will be a once-in-a-generation opportunity for the value investor!

Monday, March 8, 2010

Street jiggin' in hopes of J6P piggin'.. and the fringe?...it be wiggin

Street getting jiggy with it.

Just a matter of time donchaknow until Ma and Pa Kettle are willing to bet that farm again. MSM peppering them with the pablum narrative that the nascent recovery is becoming more and more secure each and every day... how can you not brothers and sisters invest for the long term? Profits set to ramp, earnings set to launch ... now is the time! Get on board or get left behind.

Leading or lagging? Most assuredly quite nagging... as angels of proprietary are being swamped by the institutional diktat against sobriety.

And please o ye analyticus ursinus don't beleaguer us, howl the Nancy Capitalists, with inconvenient truths such as seasonal adjustments or past revisions or government intervention distorting statistics.

Seriously, so what if the Federales Household Survey showed that this month the category of 'Men 16 years and older' accounted for 297,000 of the 308,000 jobs gain and last month 'Women 20 years and older' produced 529,000 of the 541,000 jobs gain.

Dude, stats happen! Don't blame the soothsaya.

Street jiggin' in hopes of J6P piggin'.. and the fringe?...it be wiggin!

Crawford Perspectives
March 8th
By Arch Crawford

On February 1, we wrote here “Either three days of accelerating ‘scary’ drops will appear soon, to finalize this decline, or markets will meander…”. Immediately following, a sharp drop materialized culminating with the low during the day of February 5. And this: “Whether a seasonally higher April or May peak is in the cards remains a debatable issue and the cycles need not be rushed into a premature judgment.” Yep, still debatable!

The Bradley Model goes down from now to late September as the astronomic pressure grows more and more deleterious into the most powerful major alignment we have ever seen. Zimmer in Vienna (Amanita) calculated the Bradley back 200 years and has seen nothing so potentially damaging.

At the recent NCGR conference in Cambridge, Mass., another astrologer said they checked back for sky patterns a thousand years and another piped up that they had looked back Ten Thousand years and neither had seen this one’s match!

One need not be particularly “superstitious” to take minimal precautions in these challenging times. The Mormons are required to hold 2 years worth of food and water in their homes. What do THEY know? The HOPI say that this fifth destruction of the world will be by Earthquakes this time. With the events of recent days, maybe one should head for some high ground… but NOT with ‘overhanging’ ground.'

AM here: 'Tis a good thing that us Moderns with our fancy models and prophetic prognostications based on random-walk and fundamental analysis don't believe in this kind of stuff eh? Golly gee so what if the orthodoxy predicts that index swings of more than 7 percent should come once every 300,000 years. So what if the twentieth century saw forty-eight such days.

So what?

Saturday, March 6, 2010

Anonymous Monetarist Mailbag : Viewer Mail

(An exchange with a reader is detailed below. Am interested in any Gann adherents offering further commentary - most especially any folks that might wish to delve into the esoteric and cosmological aspects of the following Gann quote when referencing the United States Steel Name Chart:

'The basic number or low point, for example 9, the lowest digit on U.S. Steel, and its vibrations according to its name, all cause slight variations at times from other stocks, because each stock works according to its own base, beginning point, numbers and name.'

Anonymous said @ March 6, 2010 5:53 AM

Needham has stated Mr Gann was a fraud...He also recently stated JCN (Webmaster) Mar 06, 2010 - 1:22am GMT

10 hours ago - Don't get hung up on Gann. It's mostly bunkum and the good stuff comes from Sepharial in any event.

But just to clarify. Gann worked on both stocks and commodities. His base was what he called the 1X1 line. Gann charts have some very particular properties, most notable of which is that time and price were measured on an equal scale. So if price went up 1 point (or $) in one day it would be holding the 1X1 line. He also used 1X3 (the angle on the triangle), 1X2; 1X4 and 1X8 lines.

The original meaning of "Time and Price" squared meant an equal move on both chart axis. So a market that moved 150 points in 150 days was said to "square" time and price.

Almost all charting programs have some form of Gann lines or Gann "fans" that create these lines, but as programmers and traders almost entirely fail to understand Gann's methodology; all but 1 of the Gann tools are wrong (including Genesis). Check out his website forum and view for yourself the hypocrite who looks to fool all.

Anonymous Monetarist said @ March 6, 2010 9:17 AM

Yes Anonymous,

Very familiar with John's analysis.
To expand upon your point using Mr. Needham's prescient observations:

'Gann's simplest teachings held that these angles would measure markets in a predetermined ratio such as 1X1 where price would move 1 'unit' for every 'unit' of time. Other popular Gann angles were 1X4 and 1X8 being angles on the square and the special 1X3 lines, angles on the triangles.

Gann's background in freemasonry and Sepharial's books 'The Silver Key' and 'Kabala of Numbers' are essential reading for a deeper understanding of Gann's work.

Gann's opinion of market turns occurring when 'time and price are squared' is referring to the point on an angle where market price coincides with 1X1 or other angle.

This 'point on an angle' could be an important numerological sequence from Sepharial.

It could also be a time fractal from the astrological chart ruling the market in question.

Gann's discovery 'that markets move in fractals of 1/8th of the previous price range' should be a dominant plank of his claim to fame.

Markets still use 1/8th fractals of previous ranges as their boundaries (and 1/3rds).

For Gann these ratios were as far as he developed his price sequencing. For the Danielcode they are the base ratios.

The most common of Gann's time cycles were astrological cycles.

Gann's teachings hold that the high before the high and the low before the low were paramount chart points.

Danielcode market time can be measured from two points, the high and the high after the high. If we are seeking a high we usually measure from the low or the low after the low.

All markets have their own "vibration", what WD Gann called the "Law of Vibrations". So each market has an identifiable signature or vibration. Gann, who was much dependant on Sepharial for his market insights, thought that vibration came from each market's birth number ie its horoscope. In Sepharial's "Silver Key" he shows a horoscope of the “birth” date and time of the New York Stock Exchange and the first trade of a number of stocks on that exchange. He ascribes the NYSE signature vibration to those calculations.

Of course, most of that is nonsense and the true number or vibration for NYSE is the sum of its parts. If you run a best fit regression for every stock on NYSE and give them an exponential weighting, then take the mean of that rating, you will have the true vibration of NYSE.

Strangely it is not far from what Sepharial calculated 90 years ago with his birth charts!

Many have dedicated large parts of their life in the search for the twin Grails of trading: price and time. That they are the same thing juxtaposed on different axis is not a new concept. WD Gann, under the tutelage of his mentor, the British astrologer and numerologist “Sepharial” advanced this proposition in 1935. But Sepharial camouflaged his observations by claiming that they were related to astrological cycles. Indeed they are, but he scrupulously avoided saying that all of these cycles are of Biblical origin. What do you think the wise men, sages and prophets of Biblical time were looking at on those myriad of long nights as they sat outside their tents? They observed the stars and the heavens. And they wrote down, sometimes in code and sometimes openly, the great cycles of the heavenly orbs. Sepharial used that knowledge but fudged naming the source because it wasn’t cool'

Anonymous Monetarist said @ March 6, 2010 9:18 AM

Now Anonymous,

Pretty sure you know all of this given your familiarity with Needham however other readers might be curious enough to continue their exploration on this subject and I would urge them to do so...

To be mindful is a discontinuous process, our senses allow us a glimpse at the perfect form (truth) but that view can often be distorted by the flickering fire of perception that illuminates the shapes we perceive to believe...

Or to quote the venerable Gann expert and Swing trader Jeff Cooper, 'Is there a sacred geometry weaving through time and price or is the market a random walk? It seems to me if there is any threshold of geometry which runs through the market then all math leads to Rome. Number is as number does.'

As a last bit, continuing Jeff's ' Number is as number does' comment...

Gann did a Col. Jessup saying we couldn't handle the truth... and as such he never directly articulated his beliefs...in that sense, yes he was a fraud, albeit a clever one relying on the insight of some clever folks.

Friday, March 5, 2010

Where did you go Joe? A nation bids its unemployed adieu in this Great Depression

'Now Main Street's whitewashed windows and vacant stores
Seems like there ain't nobody wants to come down here no more
They're closing down the textile mill across the railroad tracks
Foreman says these jobs are going boys and they ain't coming back to your hometown
-Bruce Springsteen

'Although he may not always recognize his bondage, modern man lives under a tyranny of numbers.'
-Nicholas Eberstadt

'There was a young man from Trinity,
Who solved the square root of infinity.
While counting the digits,
He was seized by the fidgets,
Dropped science, and took up divinity.
-Unknown Author

The Ancients used mathematics in order to try and understand the world around them.

Us Moderns use it to obfuscate.

First, let's agree on the basics.

The labor force is the number of people aged 16 or older who are either working or looking for work and the size of the labor force depends on two factors. The first is the size of the population, which is determined by rates of birth, immigration, and death. The second is the labor force participation rate—the percent of the population that is working or actively seeking employment.

From bls.gov : Excluded are persons under 16 years of age, all persons confined to institutions such as nursing homes and prisons, and persons on active duty in the Armed Forces. The labor force is made up of the employed and the unemployed. The remainder—those who have no job and are not looking for one—are counted as "not in the labor force." Many who are not in the labor force are going to school or are retired. Family responsibilities keep others out of the labor force. People with jobs are employed, people who do not have jobs and are looking for jobs are unemployed, and people who meet neither labor market test are not in the labor force.

Now, let's break down the numbers from when this secular bear started in 2000 to the February 2010 report (data from http://www.bls.gov/web/cpseea1.pdf):

In the year 2000:

Civilian noninstitutional population : 212,577,000
Civilian labor force : 142,583,000
Civilian labor force particpation rate : 67.1%
Number of employed : 136,891,000
Percent of Population : 64.4%
Number of unemployed : 5,692,000
Percent of Labor Force : 4.0%
Not in the labor force : 69,994,000

Let's compare that to February 2010:

Civilian noninstitutional population : 235,998,000
Civilian labor force : 153,512,000
Civilian labor force particpation rate : 64.8%
Number of employed : 138,641,000
Percent of Population : 58.5%
Number of unemployed : 14,871,000
Percent of Labor Force : 9.7%
Not in the labor force : 83,487,000

Holy denominator of doom oh ye bullisht throngs!

13 million people, over the last decade, have neither jobs nor any desire to look for one?

That's greater than the total increase of the civilian labor force!

But the boomer generation(and by the way what are we going to call the next one? the 'buster' generation?), those 74 million from 1946 to 1964, they ain't retiring en masse yet...

Oh golly I guess they are all going back to school to learn new skills for the global economy. But wait... according to the 2000 census there were 76.6 million students enrolled in schools from kindergarten on. Out of this total 17.5 million were enrolled in post-secondary (college including graduate school.) Assuming the 2010 census doesn't report that an epidemic of forty and fifty somethings are joining the beer-bonging caste that is today's 'enseignement supérieur' in an entirely stealth fashion, 'going to school' seems to be a specious explanation...

Where did you go Joe? A nation bids its unemployed adieu in this Great Depression.

The Northern Trust stated on January 10,2006 in its' report, Noteworthy Aspects About the Participation Rate (2000-2005),'there is no conclusive research explaining the reasons for the downward trend.'...

Or as Alice said when stuck in the rabbit's room 'there's no room for me to grow up anymore here.'

Thursday, March 4, 2010

Hypocrisy, Punditry, Legacy, Destiny, Synchrony



In late 2004, the Federal Reserve Board, Federal Deposit Insurance Corporation and the Office of Thrift Supervision decided that asset-backed commercial paper put into special purpose vehicles known as conduits would not have to be consolidated for purposes of calculating capital requirements. And the regulators decided that banks need only reserve against 10 percent of the amounts put into conduits even when they guaranteed that investors would be repaid if there were a run on the conduits. Previously, securitizations typically put investors on the hook for that risk.

The research, originally published in May 2009 but revised in late January and entitled “Securitization without Risk Transfer,” found that the amount of subprime assets securitized through such vehicles soared in the wake of the exemption, even though the liquidity guarantees extended to investors meant that little or no risk had been transferred to them.

“Regulation should either treat off-balance-sheet activities with recourse as on-balance sheet for capital requirement and accounting disclosure purposes, or, require that off-balance sheet activities do not have recourse to bank balance sheets,” the authors, Viral V. Acharya and Philipp Schnabl of New York University and Gustavo Suarez of the Federal Reserve, conclude. “The current treatment appears to be a recipe for disaster, from the standpoint of transparency as well as capital adequacy of the financial intermediation sector as a whole.”


American Securitization Forum:

The role that securitization has assumed in providing both consumers and businesses with credit is striking with currently over $12 trillion of outstanding securitized assets, including mortgage-backed securities, asset-backed securities and asset-backed commercial paper.

April 8, 2008

FASB Chairman Robert Herz said the concept has been so stretched in recent years he “wholeheartedly” endorses elimination of QSPEs. “The crescendo has been the latest round of very problematic assets securitized using this approach,” he said, involving “hundreds of billions, if not trillions, of dollars in assets.”


Smells Fargo 09/30/09

Total Qualifying Special Purpose Entities: $1,796,209,000,000

Citigroup 06/30/09

Total Qualifying Special Purpose Entities: $828,300,000,000

J.P. Morgan 06/30/09

Total Qualifying Special Purpose Entities: $574,000,000,000

Goldman Sachs? Oh hell, you tell me... trying to get clarity on their book is like lookin' for celibacy in a house of ill repute.

Oh and don't forget the grandaddy of all blackholios, FANRON...

On Christmas Eve Timmy G popped the cap and a week later Fannie wound up all of their QSPE trust funds bringing about 2,500,000,000,000 back on their balance sheets!


Countdown to Convergence
Date: 2010-03-01
Garp.com (Global Association of Risk Professionals)

By Lamoreaux, Matthew G

In November, FASB and the LASB reaffirmed their commitment to a 2006 Memorandum of Understanding (MoU) that outlines major convergence projects scheduled for completion by June 2011.

(June 2011? -AM)

For two major accounting standard setters to complete such a ... project in less than two years would be unprecedented. The June 2011 deadline, however, has been affirmed by the Group of 20 (G-20) leaders; former Federal Reserve Chairman Paul Volcker, who chairs the President's Economic Recovery Advisory Board; the SEC; and the Financial Crisis Advisory Group that was set up to advise FASB and the IASB on how they should respond to the financial crisis.

FASB's main change was the elimination of qualifying special- purpose entities, or QSPEs. Eliminating the QSPE requirements potentially could cause many entities applying U.S. GAAP to retain more assets and liabilities in their statement of financial position.



In 1981 Armstrong formed Princeton Economics and, in 1998, he established a hedge fund in partnership with Magnum Global Investments.

During that time he developed a financial prediction model called the "pi-cycle model" and published long term forecasts which are still monitored by the financial press. In the United Kingdom, for example, a popular financial magazine Money Week published an article on Martin Armstrong on March 27, 2007, titled "The strange case of the jailed market genius". In that article they highlighted the model had predicted a major top in financial markets for February 27, 2007, with the next major bottom being June 18, 2011.

(June 2011? Move along nothing to see here. THEY will NEVER let that happen... right? -AM)

Silly Rabbit, Risk is for Bids ... or, Take the Red Pill

Thursday March 4, 2010 – Issue 3709
The King Report

The ISM Non-Manufacturing was better than expected. The Employment component jumped 4 points.

But the seasonal adjustment is .946. This means the non adjusted data is divided by .946, which boosts the number. The adjustment for the index is .94. In the coming months seasonal adjustments will work against the ISM Non-Manufacturing Indexes.

Next month it will be 1.033 and in April 1.069. May is 1.055 and June is 1.085.

(For the rest of the year we have: .967 in July, .984 in August, 1.004 in September, 1.002 in October, .982 in November and .961 in December. That of course is unless they change their methodology! -AM)

Government intervention has corrupted the seasonal adjusting process. When the government stimulates the economy in a period of historically lower activity, seasonal adjusting boosts the data further. But there is another reason that the ISM, PMI and the BLS keep overstating employment and economic activity. In the surveying process there is no allowance or adjusting for firms that go out of business.

For example: Take three firms of approximately the same size that are surveyed firms. One goes bust. Some of its orders and employees flow to the other entities. When the remaining firms are surveyed they will report a boost in activity and employment – even though aggregate employment has declined. If the scuttled firm had 100 employees and just 20 employees find jobs at the two other firms, real employment would have declined by 80 but in the surveying, two firms would report employment gains and the firm that disappeared won’t be counted. They same is true for production and orders.

(They cut you in half while you're smilin' ear to ear. It's magic! Follow the white rabbit. -AM)

Tuesday, March 2, 2010

A Hand up Man's Back?, Those 'certain' will laugh, and yet... look above, a Cosmic Spirograph

'I believe I can see the future
Cause I repeat the same routine
I think I used to have a purpose
But then again
That might have been a dream
- Trent Reznor

'We may become the makers of our fate when we have ceased to pose as its prophets. If you know that things are bound to happen whatever you do, then you may feel free to give up the fight against them.'
-Karl R. Popper

'Freedom of choice
Is what you got
Freedom from choice
Is what you want

'There is no fate but what we make for ourselves.'
-Kyle Reese

'Is there a sacred geometry weaving through time and price or is the market a random walk? It seems to me if there is any threshold of geometry which runs through the market then all math leads to Rome. Number is as number does.'
- Jeff Cooper

The scene in the university's financial aid office looked like a siege. Holding the notice in my hand while standing in front of a harried staff member I asked why I had been summoned to 'meet' with a financial counselor. 'Please take a seat and wait to be called' was mumbled but there were no seats and judging from the faces of folks that were coming out of the 'Pink Floydish' assemblage of doors was quite certain that I did not want to know the answer to my query.

Soon enough my number was up ... literally. The counselor in a quiet voice explained that due to new requirements from the Reagan administration anyone making over ~$4000 a year was judged as ineligible for the majority of available student aid programs. Considering that I had come to university with only $500 in my pocket and was working over 40 hours a week my princely annual recompense of ~$4500 had counter intuitively spelled my financial doom.

My first introduction to trickle down economics.

The snapshot of the resignation on my 'counselor's' face as she broke the news is a visceral memory. In the middle of her pronouncement that my college career was effectively over she was interrupted by a knock on the door and left the room for a moment.

My eyes met the top left hand corner of the room and my brain shouted, 'Think you stupid son of a bitch. Think damnit....'

Don't know how long she was out of the room but when she returned I was in tears. 'I can't go home' I blubbered, 'my father will beat the hell out of me. He is an abusive alcoholic.' BS worthy of an Academy Award.

An hour later was on the phone with my Dad, who was the antithesis of what I had described to the counselor, 'Son if anyone calls me from your school I promise I will be the most obnoxious most vile fellow they have ever talked to.'

I qualified for continuing to receive financial aid under a special circumstances 'hardship' exemption.

10 years later was on the third floor of my house waiting for a phone call from Southwestern Bell Telephone Company. Had spent the last year researching and filing a local and inter exchange tariff and negotiating the interconnection agreement with the incumbent LEC. My liaison with Bell was calling congratulating me that my tariff and interconnection agreement had been approved by the public service commission and that all that was left was a pittance necessary for a 'deposit' in order to initiate services as a competing local exchange carrier.

Trouble was, the monies requested were more than equal to the aggregate after-tax income I had earned in my life.

Unawares as to whether my voice was betraying my trembling hands and beating heart, I said, ' Well certainly do appreciate your call and recognize your need to ask for a deposit. However per your tariff if a customer has had services with you for over a year and if they have paid their bills on time then you are required not to ask for a deposit if additional services are ordered. In fact, this line I'm talking to you on has been established under my company for 13 months and if you check your records you'll see the bill was always paid on time.'

The rep chuckled and said he would call back, which he did to notify me that no deposit would be required.

So I ask you gentle reader was it the sun, and the moon, and the planets that guided my path or was it the luck of a determined Irishman and the random distribution of fate?

What is the Truth?

Is it the flip of a coin, a Bachelier Universe, or the flight of an arrow, a Mandelbrotian universe?

Or is there a third way?

As a former counsel once said to me, there's your story, there's the other side's story and then there is THE story.

Or more appropriate to this posting, as opined by the venerable Jeff Cooper, 'Is there a sacred geometry weaving through time and price or is the market a random walk? It seems to me if there is any threshold of geometry which runs through the market then all math leads to Rome.'

If the truly wise man knows nothing is Truth the process of unlearning?

As mentioned in my last post,

'ah, but there is a fly in the cosmic ointment, Kepler's assertion that the radii of the spheres accurately corresponds to the distances between the planets and his discovery of a 'congruence' between musical intervals and planetary relationships, the modern proof of Pythagorean tenets, has been dismissed in part due to the lack of a rigorous demonstration that such a relationship is not anything more than a random distribution.

Wouldn't it be nice if say there was a theory that offered to us that the formation of our planetary system was guided by the influence, or force, that led to the arrangement of orbital velocities in such a way that, with a 99%+ certainty, there is an explicit correspondence to the numerical relationships of musical/harmonic intervals?'

In what may be a seminal tome by Hartmut Warm entitled, Die Signatur der Sphären (Signature of the Celestial Spheres), the author claims that:

'The order and movement of the planets in our solar system corresponds very accurately to simple geometrical figures and musical intervals, although in a different way than assumed in conventional concepts. One of the keys for an explanation is to be found in the analysis of the harmonical arrangement in the semiminor axes of the elliptical orbits, whereas earlier models and calculations were based on the semimajor axes.'

In reviewing Kepler's work Herr Warm asks 'whether and how strong the assumed planetary harmonies differ from a random distribution. In a series of numerical proportions, which can be derived from parameters like distance, velocity etc., you will always find several that come close to musical intervals like 2/1, 3/2 etc.' and concludes that upon examining Kepler's planetary harmonies 'we can see that there is no deviation from a random distribution. But Kepler can be excused in his failure to properly elaborate his basic ideas, because the probability calculus was unknown in his time.'

If you've made it this far gentle reader, it's time to buckle up....

'Thus the mentioned analyses seem to explain why modern astronomy refuses the concept of a “harmony of the spheres" (Kepler's notions concerning these ideas are described in the scientific literature as “daydreams” or the like.) But as yet nobody – at least to the author's knowledge – has attempted to include the semiminor axes into consideration. At a certain point in time each planet in its revolution around the Sun has exactly the distance of its semiminor axis b from the central star. The velocity of the planet at this point almost precisely equals the arithmetical mean of the extreme velocities (which occur at the aphelion and the perihelion, i.e. at the farthest and the nearest points of a planet on its elliptical orbit around the Sun). If we put the velocity at the distances of the semiminor axes and that in the aphelion into correlation, we find a highly significant correspondence with musical intervals.

Now 13 of 17 possible correlations lie near or very near to the musical intervals. If we employ statistical methods of calculation, this accumulation can appear only with a probability of 1/10,000 (if we take into account, that there are about 10 possibilities to constitute relations from the different parameters mentioned above, the resulting probability still is only 1/1000).

Thus the ancient notion of a “harmony of the spheres” and especially the fundamental ideas of Johannes Kepler have been confirmed for the first time, and this in a manner that can principally be verified by everyone.

It is not a genuine proof, because this is something the probability calculus will never be able to deliver. Nevertheless we can state in other words, that at the formation of our planetary system there must have been an influence, or force, which with a probability of at least 99.9 % led to an arrangement of orbital velocities that corresponds to the numerical relationships of musical-harmonic intervals.'

Flight of the arrow baby! And if one were to tie a string to that arrow?

The pictures above are what Herr Warm describes as 'Raumgeraden, or link lines (i.e. the imaginary connecting lines between two planets within a fixed period where one can see the geometrical forming principle repeating itself.'

The description of the pictures starting from the bottom and working up are as follows:

1) Raumgeraden (link lines) between Venus and Earth, continually plotted in 3-day periods (1000x). Scale in million km. Sun in the centre of the co-ordinate plane. About eight years. © Keplerstern Verlag

2) Raumgeraden (link lines) between Jupiter and Uranus, continually plotted in periods of 60.781 days (1000x), total space of time 166.4 years. © Keplerstern Verlag

3) Mars-Jupiter Raumgeraden (link lines) at Mars/Uranus conjunctions (1000x), starting on 22-09-2001, total space of time 1923.88 years (selective enlargement 3/1). © Keplerstern Verlag

4) Earth-Jupiter Raumgeraden (link lines) at Earth/Uranus conjunctions, (750x), starting on 11-08-2000, total space of time 759.03 years (selective enlargement 10/6). © Keplerstern Verlag

5) (The purty one in color..) Neptune from Saturn-centered view at Jupiter/Neptune-conjunctions, 700x. total space of time approx. 8947 years. © Keplerstern Verlag

For more info please check out www.keplerstern.com. An English translation of Herr Warm's book should be available summer of 2010.

Très cool.

Think outside the cave!

Monday, March 1, 2010

Circle smirking, taking the fifth, Kepler and Needham and Gann and Pyth

'After these things the word of the Lord came to Abram in a vision... “Look toward heaven, and number the stars, if you are able to number them.” Then he said to him, “So shall your offspring be.” And he said to him, “I am the Lord who brought you out from Ur of the Chaldeans to give you this land to possess.” But he said, “O Lord God, how am I to know that I shall possess it?” He said to him, “Bring me a heifer three years old, a female goat three years old, a ram three years old, a turtledove, and a young pigeon.” And he brought him all these, cut them in half, and laid each half over against the other. But he did not cut the birds in half.'
Genesis 15

'In Kepler's fifth book, the astronomical part, he presents his great harmonic discovery: the realization of musical harmonies through the movements of the planets. After first musically examining the distances and orbital periods of the planets from various viewpoints, and obtaining no satisfying results, he then examines the angular velocities of the planets, as an observer on the sun would perceive them, and establishes that these velocities, at the perihelion and aphelion of each planet, when positioned on the monochord, yield the most beautiful musical harmonies-for each individual planet as well as for the various planets compared with one another. This result also applies to the outer planets discovered later, as calculated in modern times; it appears to be a universally valid principle of the structure of our solar system. If one is aware of this, and has pursued the many other typical harmonic analyses in Harmonice Mundi, then one will see the mathematical result of this work by Kepler, namely his famous Third Law, through entirely different eyes. This law states that the squares of the orbital periods are proportional to the cubes of the major axes. This means, in Kepler's harmonic mode of thought, that the temporal primal intervals of the orbital periods must be raised to the second intervallic power, and the spatial primal intervals of the major axes must be raised to the third intervallic power. This means a power ratio of 2 : 3, i.e. the fifth, the most important interval after the octave!'
-Hans Kayser

'Edward Dewey asserted that seemingly unrelated time series often had similar cycles/periods present and that when they did the phase of these cycles was mostly very similar (cycle synchrony). He also said that there were many cycles with periods that were related by powers or products of 2 and 3.'

'In 1923, Gann said markets move in threes and twos.'
-John Needham

As previously stated on this blog:

'29.7%, 44.5%, 59.3% and 89% are retracement levels per Mr. Needham's {thedanielcode.com} theories. Expressed in fractions, 59.3% and 89% are 16/27 and 8/9. These fractions can be seen on the picture of the 'Pythagoras guitar' above. The inverse ratios of 9/8 and 27/16 are the frequency ratios of D and A as they relate to the fundamental tone of C.

The major scale based on C (fundamental tone) obtained from Pythagorean tuning is based on a stack of perfect fifths each tuned in the ratio 3:2 the next simplest ratio after 2:1 which is the ratio of an octave.

The frequency ratios of D and A as you ascend by perfect fifths are 9/4 and 27/8 respectively. These two fractions are the inverse ratios of 4/9(44.44%) and 8/27(29.63%).'

AM here: The ancients' belief in the 'music of the spheres' was reintroduced to the modern age by Johannes Kepler. During his life man knew of only six planets and Kepler proposed that the distance relationships could be understood in terms of five Platonic solids. 'Kepler then discovered that when these solids are placed inside each other so that the outer sphere around one solid is also the inner sphere inside the next, the radii of the spheres accurately correspond to the distances between the planets' says Hans Kayser, described as a 20th century Phythagorean Master, who also has, for Gann students, a rather fascination description of Kepler's pursuits:

'Kepler's first approach to this subject was geometric. When one attempts to assemble regular three-dimensional solids from equilateral polygons, it becomes apparent that only five such solids are possible. From equilateral triangles, three solids can be built: the tetrahedron from four, the octahedron from eight, and the icosahedron from twenty triangles. From squares, only the cube can be built, and finally the pentagon-dodecahedron can be built from twelve pentagons. These five solids were first described by Plato, and are therefore called the “Platonic solids”. Now each solid can be placed inside a sphere, so that all the corners of the solid touch the surface of the sphere on the inside; and another sphere can be placed inside each solid, so that the sphere's surface is tangent to the center of each surface of the solid from the inside.'

AM here: Focus on the bolded excerpt of that last sentence for a moment, consider that the corners of the simplest solid touching the surface of a circle would trace out a square, and compare this to Gann's most mysterious declaration : 'Within the circle forms the square, there is an inner circle and an inner square, as well as an outer square and an outer circle which prove the Fourth Dimension in working out price movements.'

As noted Gann expert Daniel Ferrera points out, the inner square is an exact musical octave of the larger outer square.

Now let's look at the second part of that last sentence from Kayser, 'the sphere's surface is tangent to the center of each surface of the solid from the inside.'

When considering a fourth dimensional view of the markets, agreement upon the first two dimensions being time and price is widely shared. Also the interchangeability of time and price, namely time and price being the same albeit on different axis, is commonly held. For those that peek into the esoteric the general consensus is that the third dimension is volume.

The fourth dimension? Well, one way to conceptualize it is to consider volume to be merely a cross-section of the fourth dimension.

For example, Mr. Needham states(and when reading the following please note that the retracement levels stated above, 29.7%, 44.5%, 59.3% and 89%, are what is being referred to with the term binomials):

'When we look at normal charts, they are representing 3 degrees on the linear plane. Price on the vertical axis, time on the horizontal axis and volume. These are the 3 degrees that most see.

Gann talked about a "4th Degree" and the 4th Degree is "An Angle". My Regression Channels are an angle and hence a derivative of the 4th Degree.

When we advance our knowledge of the Danielcode time and price ratios, we can conceptualise that rather than using these ratios on the linear plane, which gives us the blue line targets, red line retracements and DC time cycles, we can actually place them as an arc rather than a straight line. From this process we get the DC "Binomials" which I have written about occasionally. With the Binomials we are working in the 4th Degree, so the markets are coming "out" or going "in" to the linear charts. You can see the Binomials and the 4th Degree on a CAD-CAM program, but it is tedious as the software is not available to code sequential data points.

The fixed points in the Regression Channel are derived from the Binomials, so to some extent, the {long term charts I create} are just a 2 dimensional view of the Binomials. But they are a linear extrapolation as opposed to the tangents and arcs that express the DC Binomials.'

AM here: Now let's consider the works of Jerome Baumring author of, among other tomes: 'Gann Harmony, The Law of Vibration'.

As relayed by Brad Stewart of the Sacred Science Institute, 'Vertical = vector radius of price. Horizontal = vector radius of time. Diagonal angles tell you what stage of growth you are in. Tangent of curves show support levels. Gnomonic growth = harmonic composition. Waves are directional force fields(vectors). Slope of vector is its vibratory rate.'

AM here: Indulge me for one more moment and travel back to the dusty days of Trig and please recall that Tan θ = Opposite/Adjacent, Cos θ = Adj/Hyp, and Sin θ = Opp/Hyp (see right triangle above).

The second picture (above) is a unit circle. Cribbing from an old bbc.uk article:

The unit circle is simply a circle whose centre is on the Cartesian origin (0,0), and whose radius is 1.

The most interesting thing about the unit circle, as far as trigonometry is concerned, is that it gives us the values of sine and cosine for any angle.

Measure the angle θ between the x-axis of the Cartesian plane and a line that extends from the origin. Now, here's the really interesting thing; the sine of the angle is equal to the y-coordinate of the point on the unit circle where the line crosses, and the cosine of the angle is equal to the x-coordinate. This is true for any line extending from the origin.

Why is this? Well, the line segment from the origin to the point where it crosses the unit circle forms the hypotenuse of a right-angled triangle. Because the radius of the circle is 1, the length of the hypotenuse is likewise 1.

Sin θ = Opposite

Cos θ = Adjacent

Tan θ = Opposite/Adjacent

In other words:

Sin θ = y

Cos θ = x

Tan θ = y/x

AM here: So tying the strings together as it were, if x is time and y is price, and the tangent is support and resistance, as advocated by both Needham and Baumring, or in sacred geometry terms the form/volume, then the inverse tangent is the fourth dimension, an angle.

Circle smirking, taking the fifth, Kepler and Needham and Gann and Pyth.

Ah, but there is a fly in the cosmic ointment, Kepler's assertion that the radii of the spheres accurately corresponds to the distances between the planets and his discovery of a 'congruence' between musical intervals and planetary relationships, the modern proof of Pythagorean tenets, has been dismissed in part due to the lack of a rigorous demonstration that such a relationship is not anything more than a random distribution.

Wouldn't it be nice if say there was a theory that offered to us that the formation of our planetary system was guided by the influence, or force, that led to the arrangement of orbital velocities in such a way that, with a 99%+ certainty, there is an explicit correspondence to the numerical relationships of musical/harmonic intervals?

Stay 'tuned' for my next posting.

Time and space/price and form.... oh my!