THANK YOU FED MAY I HAVE ANOTHER.....

I was doing market research this morning and I found yet another reason to dislike the Federal Reserve (yes, I know they have social media monitors logging in my rants).  As you examine your bank accounts, savings accounts, and all other "safer" investments we should be prepared to thank the entity that assists us our efforts to move backward away from any realistic investment goals.

Here is a real advertisement from ALLY Bank promoting a very wonderful 1.45% yield on a 4 year CD.  WOW!!!  And to think you only have to invest your money with a bank that was formerly GMAC that owned ResCap, an entity which filed for bankruptcy in the last couple of weeks.  Don't forget though, those CDs are 100% guaranteed by the FDIC so no worries!!

HOW CAN WE THANK THE FED?
ZIRP is how we can thank the Fed!  Our liquidity at all costs and zero interest rate policy is absolutely the reason we can lock our money away for 4 years and receive almost nothing.  Thank you Uncle Ben!

In comparison we can buy short dated corporate bonds and earn only slightly better if we go do the credit curve and buy riskier names.  The range I am seeing for lower quality investment grade names ranges from 1.4% to 4.0%  Still, that is disgusting considering the risk you need to take to get those rates.

WILL IT EVER CHANGE?
Unfortunately to keep the ponzi scheme going, it can't.  If the Fed lets rates rise, we can't afford it as a nation.  Ask the Japanese how that 10 year 1% bond helps retirees, I'm sure they love it!

JPM AND ITS IMPACT ON CREDIT SPREADS
Well, JPM seems to be getting a little news on its "Hedge Book that looks and acts like a Prop Trading Desk".  I find this story to be very entertaining as they were short long dated investment grade bonds, betting that price would go down and yields up.  It seems as though JPM's Hedge Book is so large that it was moving markets as it bought and sold positions (or in credit terms he sold protection on the IG9.  In addition, it seems as though the book was thrashed as several issues combined to tip the market off that there was a massive player in the markets.  As JPM's desk sold protection its daily adjustments were so large that it dislocated normal correlations of the investment grade market to the S&P500 equity market.  Those evil hedge funds began to see the divergence in markets and started trading against the mis-allocation in pricing, betting that it would come back into alignment.  In the midst of these trades, long term treasury rates fell as concerns in Europe mounted, creating an even more trouble set of circumstances.  Since the book is so big, JPM was altering credit markets in their attempts to hedge and position the book!  If JPM is still in it's positions, it is getting hammered.  In a conference call, it was released that the DV01 or Dollar Value of a 1bps move for the book was $200 million!  Since the the early rumors broke on this story back in April, the 9 year investment grade yield curve has moved out 25bps which could suggest that there really is a staggering $5 Billion loss (if they still have those positions on).  Pretty nasty loss for a risk controlling desk isn't it?

As I've written for almost two years now, investors in bonds can only be in short dated bonds.  If a person desired longer maturities they certainly shouldn't be buying bonds now as the only place for rates would be up (in sometime in the future).  Given the problems we are seeing with JPM and long dated credit, we all are left saying, "Thank you Fed, may I have another!"

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

JOE 6 PACK LEARNS FROM BERNANKE AND GOES TO THE POKEY

JUST DOING WHAT OUR LEADERS DO -
While scanning the news I was struck by the irony of this story from the San Francisco CBS affiliate.
Samuel Kioski was arrested recently for an inventive application of Ben Bernanke's magical printing tricks.

http://sanfrancisco.cbslocal.com/2011/05/26/technician-faces-charges-of-cleaning-out-bay-area-atms/

REPLACING WORTHLESS DOLLARS WITH WORTHLESS PAPER
Allegedly, Mr. Kioski was an ATM technician who replaced almost $200,000 of real money for fake copies of dollar bills.  In his "rampage" Samuel opened up a total of 7 machines, grabbed the real cash, and dropped in bad forgeries into the cash dispensers.  The police stated that the fake money was not even a good attempt as he simply made the bills on a copy machine. 

The repairman was able to sneak away since last July with his haul, but was found two weeks ago in Arizona. 

YOU NEED TO BE A BANKER TO GET AWAY WITH THIS
See, Mr. Kioski didn't quite understand that you must have a PHD from Yale or Harvard and also deal in billions rather than hundreds of thousands to get away with this sort of trick.  Our central bankers have pulled off the exact same scheme, but instead of going to jail, they are lauded as heros.  Think back to the scary days of the economic collapse.  When the full impact of the Lehman implosion was being felt, we watched as Goldman Sachs, Bank of America, JP Morgan, and others swapped their toxic assets with us for clean, crisp, and freshly printed digital dollars.  We taxpayers (our leadership and the Fed) were more than happy to trade worthless paper (MBS) for our currency in the name of avoiding disaster. 

Compare the TARP swap with the trade Mr. Kioski made and you'll find little difference between his moves and those of the Fed, Treasury, and the bankers; little difference besides that it was a small amount and not sanctioned by the thieves at the NY Fed. 

WHO IS THE BIGGER CRIMINAL?

RULES TO STEAL BY -

So the takeaway from this story is that if you are going to pull a fast one and take money from folks, you must follow these rules to get away with your booty.

1)    Take money from taxpayers, not banks

2)    Rip folks off for billions or trillions, not thousands

3)    Wear suits and talk about the end of the financial system, everyone will hand over the money immediately

4)    Go to Davos, not somewhere like Arizona

5)    Take your wife with you, then she won't file a missing persons report

GOATMUG



SILVER BUGS COME OUT OF THE WOODWORK - MAX KEISER & DAVID MORGAN ON SILVER

Max Keiser is one of the sites I visit frequently.  He is edgy and funny and correct about so many topics.
Max is unique in that he does a video blog and often includes great interviews of major players that "get" what is going on in the world fiat ponzi system.  You can find Max's site here at http://maxkeiser.com/

As many readers know I have advocated commodities as a core portion of your long term and short term portfolios.  One element that I personally purchased has been silver (in the form of an ETF and also in physical form).  Please click on the Max Keiser interview with David Morgan who is a trader and expert in the precious metals markets.  The interview starts at 13:10 in the show.  I find it really interesting and the longer term perspective David has makes you consider buying the dips in silver.

Make sure that you hit play first on the video and then scroll the bar over to 13:10.  If you scroll first before hitting the play button it will get stuck in some kind of loop.



Let me know your thoughts on this.  Be Careful!

GOATMUG

THIS IS A CANCER - CHRIS WHALEN ON THE MBS FRAUD

Chris Whalen is interviewed on Bloomberg about the MBS issue and the ramifications for investors.  Chris details how he thinks these losses will ultimately be put into an RTC type vehicle.

What is catching about this 7 minute interview is that he suggests that this will be a non-event driven event, meaning that there won't be some big implosion, but rather a cancerous attack on bank earnings.

I'd love to have more details on what he mentions here, but he also suggests that JPM did a very good job of doing their paperwork.  He doesn't say more than that, but as you know, I love long/short plays.  I don't think I'd actually pull the trigger and go long JPM and short someone like BAC, but it is an interesting thought.

Ultimately he ends with the idea that investors in MBS might just have no recourse whatsoever if they cannot amass at least 25% of the issue.  If an investor can obtain 25% then they can compel the trustee to sue the creator of the security, otherwise, no recourse may be the result.  YUCK!  Can you imagine buying a complete fraud only to find out that you have no ability to do anything about it?

Enjoy!





Be Careful! (Hat tip to Karl D)  If you want to drink from the fire hydrant on this continuing issue, please check out his site daily. - http://www.market-ticker.org/

GOATMUG