Happy Turkey Day, White House Evaluates Growth Measures, How Geithner Got His Nickname

I'd like to say on behalf of the entire staff here at RCM, Happy Turkey Day.

Speaking of turkeys, I'd like to offer some food for thought on this holiday of epicurean indulgence.

You will find at the top of the menu, an appetizer prepared by the White House. As usual, this chef offers up fare that looks good upon presentation but falls short on execution. I find today's offering has subtle hints of desperation and longing that are overwhelmed buy strong tones of oxymoronic balderdash....

White House says evaluating "sensible and reasonable" measures to spur US growth - Reuters

As a main course, we are, in fact, serving turkey. This particular turkey you will know by another name, Pinocchio. A few have wondered why I anointed Tim Geithner, Pinocchio. Some have even questioned my motives. To the simple son, I say read the following account of Pinocchio's behavior and learn. To the wicked son, I will continue on this biblical vein and say, "With all thy getting, get understanding."....

A brutal report issued Monday by a government watchdog holds Timothy Geithner -- then the head of the Federal Reserve Bank of New York and now the nation's Treasury Secretary -- responsible for overpayments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs. Read More...

Gold and The COT Short Position, U.S. Treasury Winds Down Money Market Funds Guarantee

I have been asked by a few readers about our thoughts on the COT short position in the Gold market. For those not aware, COT represents the commercial traders in Gold. Conventional wisdom states that if COT has a significant short position look out below. In our opinion this "wisdom" is incorrect. I would like to direct your attention to the chart above as well as the comments by Jim Sinclair below for a better understanding of the situation. Moreover, I would suggest using conventional wisdom during unconventional times is in essence a flawed approach.

As the C-wave began to accelerate from $439 on 8/23/05 to $692 on 5/16/06, commercial traders were heavily short. Their net short position as a percentage of open interest was -50.6% on 8/23/05. The lowest reading since 2001. Like August 2005, the time is right for the C-wave advance. When the time is right, price will follow. As of 9/15/09, commercial trader net short position as % of OI -49.2%. The most negative readings since 8/23/05.

Those advocating caution towards gold on the basis of commercial trader concentration on the short side, referred to as overloaded trade, ignore that gold’s strong advance from August 2005 to May 2006 developed from a similar "concentrated" position.

Thanks to a blog reader, I have received this information in response to my question last week about the expiration of the money funds insurance program set up by the U.S. Treasury.

From the Press Room of the U.S. Treasury:
Treasury Announces Expiration of Guarantee Program for Money Market Funds
Program Winds Down as anticipated, Generates $1.2 billion in participation fees for U.S. Taxpayers

The U.S. Department of the Treasury today announced that the Guarantee Program for Money Market Funds (the "Program") will expire today. The Program was initially established for a three-month period that could be extended up through September 18, 2009. Since inception, Treasury has had no losses under the Program and earned approximately $1.2 billion in participation fees.

"As the risk of catastrophic failure of the financial system has receded, the need for some of the emergency programs put in place during the most acute phase of the crisis has receded as well," said Treasury Secretary Tim Geithner. "The Guarantee Program for Money Market Funds served its purpose of adding stability to the money market mutual fund industry during market disruptions last fall and ultimately delivered a healthy return to taxpayers."

Treasury designed the Program to stabilize markets after a large money market fund's announcement that its net asset value had fallen below $1 per share ("broke the buck") in the wake of the failure of Lehman Brothers in September of 2008. Maintaining confidence in the money market mutual fund industry was critical to protecting the integrity and stability of the global financial system.

Geithner's Rant, Obama Administration's Desperation?, Ramifications of the Clunker Plan

This story is quite disturbing. The Obama administration is sliding down a slippery, or should I say, slimy slope. In Q4 of last year fear mongering was the tactic of choice to push policy (e.g. auguring global financial ruin if senators didn't quickly pass questionable legislation.) In Q1 & Q2 of this year financial market manipulation was the potion incorporated to conjure up support for far-reaching and possibly destructive government controls. Apparently Q3 ushers in a new age of coercion. When I read the story below I wonder: Is this a show of unbridled audacity (to use an Obama term) or is this the beginnings of something altogether more desperate? As ratings slip and agendas meet resistance is this how our "esteemed" president and his "brilliant" entourage conduct themselves?

Please take a good look at the June 30 post. You may feel a more acute impact of the cartoon's message after reading about the behavior described in the story below. Shouting, expletives and coercion are a common trait for the gaggle depicted.

Geithner vents as overhaul stumbles - WSJ
WSJ reports Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting.

The proposed regulatory revamp is one of President Barack Obama's top domestic priorities. But since it was unveiled in June, the plan has been criticized by the financial-services industry, as well as by financial regulators wary of encroachment on their turf. Mr. Geithner told the regulators Friday that "enough is enough," said one person familiar with the meeting. Mr. Geithner said regulators had been given a chance to air their concerns, but that it was time to stop, this person said.

Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, SEC Chairman Mary Schapiro and FDIC Chairman Sheila Bair. Friday's roughly hourlong meeting was described as unusual, not only because of Mr. Geithner's repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies generally considered independent of the White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the regulatory agencies. Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of giving the Federal Reserve more power to oversee the financial system.

Clunker plan gives car sales a lift - WSJ
The Wall Street Journal reports U.S. auto sales in July climbed to their highest pace in 11 months, as customers rushed to showrooms amid uncertainty about the future of the federal government's "Cash for Clunkers" incentive program.

Now, car makers, the Obama administration and the Senate face tough decisions about how to respond to the clunker program's apparent success. The administration on Monday stepped up a campaign to persuade senators to approve $2 bln more in funding before Congress goes on vacation at the end of the week. The House on Friday approved a $2 bln funding extension. Administration officials have warned the program could be forced to end. But some key senators in both parties are balking. White House spokesman Robert Gibbs said Monday that President Barack Obama would use a Tuesday lunch meeting with Senate Democrats to push for an extension of the program. The administration gained ground Monday when Senators Susan Collins (R., Maine) and Dianne Feinstein (D., Calif.,) dropped their opposition to additional funding, saying data released by the administration persuaded them that most vehicles scrapped so far have been sport-utility vehicles and trucks, and that 60% of the people using the program had purchased cars.

What they don't tell you:

These cars need to have a lot of mileage on them to be considered "clunkers"

People driving old "clunkers" typically come from an income bracket that can't afford a new car

This plan is encouraging these people to spend money they could be using to pay down debt or worse, inducing an increased debt burden

The incentive program requires car dealers destroy each clunker's engine and drivetrain. This will drive up the cost of used car parts that lower-income car owners who don't enter the program depend on.

Pulling demand forward, while possibly good for opinion polls, will make the future rather daunting for the auto companies.

History, unfortunately, must repeat itself. This demand pull through is identical to the shenanigans Barney Frank and his cohorts concocted in the real estate market and we all know how that ended. Barney's bunch forced banks to lend to individuals who could not afford the home they were buying. Predictably, demand dried up and foreclosures exploded when the well ran dry.

Manipulation of Equity Markets: Helicopter Ben, Pinocchio Tim and Arthur Levitt / California Misses Budget Deadline

RCM Editorial

While the mainstream media is busy rolling "green shoots" and smoking them, I thought I'd compose a post today to help you 'JUST SAY NO.'

Ben "Helicopter" Bernanke and his side kick Tim "Pinocchio" Geithner (honestly, watch him speak, I swear his nose looks like it grows) have been dealing some pretty potent D.C. "trip shoots." Of course, they are not alone. A vast network of dealers have combined to create the hallucinogenic state in which the mainstream media floats.

Perhaps the most dastardly dealers in the cartel are those who manipulate the equity markets. They claim to be champions of the free markets and providers of liquidity when they are anything but. They team up with big brokerage firms who love the gravy train of fees and drive up the cost of doing business for the rest of us.

I'm going to take a leap so try and stay with me. If you would like someone to blame for the predicament we are in today look no further than Arthur Levitt. Levitt, an ex-head of the SEC and beloved blatherskite of news outlets everywhere, spearheaded the ruination of Wall Street with the move to decimalization. In his infant wisdom, he believed that the spreads between the bid and ask on equities were too large and therefore hurt the small investor. His stupidity prevented him from realizing that spreads were and are necessary to create real liquidity. As an investor I'd rather see a .25 cent spread on a stock and know I can trade real volume at the price than a .01 cent spread with no volume. In today's market of decimalization an investor may have to bid a stock (all but the most liquid) up $1 or more to find the real volume that would have been there a 1/2 point lower in a spread environment.

The advent of decimalization murdered a major profit center for the brokers and forced them to find other means of revenue. We all know how that worked out. The profit center of spreads for brokers was not a gift. It was earned by way of creating real liquidity. Decimalization has led to a serious disease of manipulation in the markets today. The blog post below by Joe Saluzzi and the clip from CNBC should further illuminate this argument:

Joe Saluzzi Themis Trading:

Our equity market is being controlled by machines that are nothing more than two bit, SOES bandits. They cloak themselves under the mantra of liquidity providers but they are really just locusts and are feeding off the equity market until it doesn’t suit them anymore. Once their profit margins are squeezed to almost zero, they are likely just to move on to a new market. But what damage would they have done? We will be left with a shell of a market that is used to being led around by computers. Real people and real capital are a scarce resource in today’s market. Read more...

And Here It Is On CNBC: Manipulation

(I'd like to take this moment to commend Rick Santelli whose voice is a true beacon of light on this otherwise wasteland of a network.)

RCM Comment: This California story is not getting much news coverage but should be on the top your watch list. California's slow sinking into the financial abyss could destabilize the credit markets and in turn the equity markets...

California misses budget deadline, readies "IOUs" - Reuters.com :

Reuters.com reports California's lawmakers failed to agree on a balanced budget by the start of its new fiscal year on Wednesday morning, clearing the way to suspend payments owed to the state's vendors and local agencies, who instead will get "IOU" notes promising payment. The notes will mark the first time in 17 years the most populous U.S. state's government will have to resort to the unusual and dramatic measure. Democrats who control the legislature could not convince Republicans late on Tuesday night to back their plans to tackle a $24.3 billion budget shortfall or a stopgap effort to ward off the IOUs. The two sides agree on the need for spending cuts but are split over whether to raise taxes. Democrats have pushed for new revenues while Republican lawmakers and Governor Arnold Schwarzenegger, also a Republican, have ruled out tax increases. They instead see deep spending cuts as the solution to balancing the budget, but Democrats say that would slash the state's safety net for the needy to the bone.