THE DOT - if this turns orange or red be alert

Monday, August 31, 2009

Brainstorming Monday

1. The same Mr Olmert once said that America was actually run by Israel


Olmert Indicted in Corruption Cases

TEL AVIV -- Israel's state prosecutor indicted former Prime Minister Ehud Olmert on multiple counts of fraud and breach of public trust in connection with a trio of corruption scandals spanning his terms as mayor of Jerusalem and as minister of trade and industry from 2002 to 2006.

Mr. Olmert will be the first former Israeli prime minister to be put on trial on criminal charges here. He was forced to resign in September 2008 amid political fallout from the police investigation into alleged corruption.

Representatives for Mr. Olmert weren't reachable to comment. A spokesman for Mr. Olmert told Israel's Channel 1 public-television news that the indictment is filled with inaccuracies and contradictions. "We are sure that when we arrive in court, things will look differently," said the spokesman, Amir Dan.

In the introduction to the 61-page indictment submitted Sunday to a Jerusalem district court, the state accused Mr. Olmert and his office manager, Shula Zaken, of exploiting Mr. Olmert's position to reap "ongoing and systematic financial favors" through "acts of fraud against public institutions and bodies, as well as the state and its employees."

In one instance, Mr. Olmert is accused with overcharging Israeli government ministries and American and Israeli nonprofit groups by $92,164 to fund personal and family travel abroad. He is charged with intentionally double-billing U.S.-based Jewish charities such as the Indianapolis Jewish Federation, the Simon Weisenthal Center, and Israel Bonds.

In a separate instance, Mr. Olmert is charged with failing to report accepting hundreds of thousands of dollars, allegedly in cash-filled envelopes in some instances, from U.S. businessman Morris Talansky.

Mr. Olmert also is charged with ignoring conflicts of interest in policy decisions when he was trade and industry minister under Prime Minister Ariel Sharon that affected companies who had hired a former legal partner and political adviser of Mr. Olmert's, to represent them.

The state prosecutor also alleged that Mr. Olmert tried to cover up the scandals by falsifying corporate documents and by fraudulent nondisclosure of income.

The charges relate to Mr. Olmert's dealings from 2002 to 2006.

2. Uranus /Saturn opposition shows again its earmarks after allowing the first (half)black president to occur now in Japan we have a dramatic change as well the DPJ takes over after 50 years.


Rise of a New Era in Japan

A 50-Year Dominance Ends as Voters Oust LDP; Rivals to Spend More, Weigh U.S. Ties

TOKYO -- Japanese voters overwhelmingly rejected the party that has largely ruled their nation for most of the past half a century, choosing instead an untested rival to grapple with an enfeebled economy and an aging society.

The historic change in government could usher in a new era for Japanese politics that replaces the staid consensus that guided Japan in its postwar boom years with a more fractious, competitive environment. The upstart Democratic Party of Japan and the establishment Liberal Democratic Party share similar positions on a number of issues. But the more-liberal DPJ is pushing an ambitious and expensive domestic spending agenda with an eye toward reigniting Japan's economy.

3. We can add one more indicator for a top - Chinese Investors are not the smartest (even are contraindicators) like Japanese investors it seems - they have recently decided to get into Hedge Funds and Private Equity again. They earmarked the top with the very interesting timing of Blackstone's IPO and their big purchase , which was almost exactely at the high.

Also the sentiment factors are getting closer

High bullish readings in the Consensus stock index or in the Market Vane stock index usually are signs of Market tops; low ones, market bottoms.

Last Week2 Weeks Ago.3 Weeks Ago
Consensus Index

Consensus Bullish Sentiment47%43%49%
Source: Consensus Inc., P.O. Box 520526,Independence, Mo.
Historical data available at (800) 383-1441.
AAII Index



Source: American Association of Individual Investors,
625 N. Michigan Ave., Chicago, Ill. 60611 (312) 280-0170.
Market Vane

Bullish Consensus49%47%47%
Source: Market Vane, P.O. Box 90490,
Pasadena, CA 91109 (626) 395-7436.
FC Market Sentiment

Source: First Coverage 260 Franklin St., Suite 900
Boston, MA 02110-3112 (617) 303-0180.
FC Market Sentiment is a proprietary indicator derived from actionable sell-side trade ideas sent by the sell-side to their buy-side clients over the First Coverage platform. Over 1,000 institutional sales people at more than 250 firms participate on the First Coverage platform and have contributed hundreds of thousands of ideas since inception. Each Idea is associated with a ticker or sector and is tagged bullish or bearish by the creator. This data is aggregated at the sector, industry and market level. The FC Market Sentiment score ranges from 0-100 (0=most bearish, 50=neutral, and 100=most bullish) and represents a completely objective, real-time view into what advice the sell-side is providing to their buy-side clients

Citigroup Panic/Euphoria Model
Market Sentiment

Friday, August 28, 2009

Brainstorming Friday

1. We had in the 2nd half of the week the expected pullback which was actually even less than I thought but fits into the overall concept of building the top and the distribution combined with sector rotation. Cleary the correction is building now but very disturbingly very broadly expected - although overwhelmingly a so called 'HEALTHY CORRECTION' - just for that cause I would challenge it but we also have very fundamental scenario for even scary version and no one expects a retest of the lows. One very good escence from soros is discount the expected and expect the unexpected.

2. Fear spreading is a bit strange as it makes no sense - just the declaration that the information would create a systematic financial crisis - does/should trigger one. Puting the banks who were the main beneficaries on the level of financials weapons of mass distruction. since that matches my basic assumption that the ultimate collapse is still to come . Though the most fascinating fact for me is that Bloomberg has arranged for this escalation of events as I have no doubt that he is a member of the 'club'- which brings us back to the conspiration case.

Excerpt zerohedge

Racketeering 101: Bailed Out Banks Threaten Systemic Collapse If Fed Discloses Information

And so the guns come out blazing. The Clearing House Association, another name for all the banks that were bailed out over the past year with the generous contributions from all of you, dear taxpayers, are now threatening with another instance of complete systemic collapse if Bloomberg's lawsuit is allowed to proceed unchallenged, let alone if any of the "Audit The Fed" measures are actually implemented.

As a reminder, The Clearing House Association consists of ABN Amro, Bank Of America, The Bank Of New York, Deutsche Bank, HSBC, JP Morgan Chase, US Bank and Wells Fargo.

In a declaration filed in the Bloomberg Case (08-CV-9595, Southern District of New York), the banks demonstrate no shame in attempting to perpetuate the status quo with regard to the Federal Reserve and demand that the wool over the eyes of the general population remain firmly planted in perpetuity.

The Clearing House submits this declaration because the Court's Order threatens to impair the ability of our members to access emergency funds through the New York Fed's Discount Window without suffering the severe competitive harm that public disclosure of their identity will cause.

Our members have accessed the New York Fed's Discount Window with the understanding that the Fed will not publicly disclose information about their borrowing, especially their identity. Industry experience, including very recent and searing experience, has shown that negative rumors about a bank's financial condition - even completely unfounded rumors - have caused competitive harm, including bank runs and failures.

Surely transparency would facilitate rumor-mongering to an unprecedented degree. After all rumors spread much easier when everyone knows the true financial condition of banks.

And here, in plain written Times New Roman, you see what racketeering by a major bank consortium looks like:

If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank's customers, counterparties and other market participants will draw a negative inference is great. Public speculation that a financial institution is experiencing liquidity shortfalls - which would be a natural inference from having tapped emergency funds - has caused bank customers to withdraw deposits, counterparties to make collateral calls and lenders to accelerate loan repayment or refuse to make new loans. When an institution's customers flee and its credit dries up the institution may suffer severe capital and liquidity strains leaving it in a weakened competitive position.

Pardon me if I am a broken record here, but would rumors not spread much less if there was more transparency, if investors and other financial intermediaries were fully aware of the conditions of their counterparties, if banks did not have to cover their billions in reserve losses by pretending they are viable and essentially being constant wards of the state?

The Banks' racketeering has gone on for far too long.

And yet, it does not stop: the conclusion from the banks' letter:

In sum, our experience differs from the factual conclusions the Court appears to have reached about the nature of competition in the banking industry:

  • The competitive harm to institutions that are publicized as needing emergency funding is not "speculative," but demonstrated by the recent multiple failures of financial institutions whenever information about their funding difficulty has been disclosed.
  • The disclosure does not involve mere "embarassing publicity" but information that could result in the immediate demise of an institution.
  • The disclosure would not merely "stigmatize [ ]"the institution or make it "look [ ] weak," but goes to its very viability.
  • The disclosure of accessing emergency funding is not an "inherent risk" of market participation, but an extraordinary risk in extraordinary circumstances.
  • Competitors can use the disclosure to advertise or publicize that they are financial stronger because they don't need emergency funding.

In a nutshell - the banks want their complete opacity cake and eat it too, or else, the racket goes, the transparency that will somehow promote massive rumor mongering will again destroy capitalism. In the meantime, the Ken Lewises of the world can continue touting how stable their businesses are based on optimistic future projections, while implicitly, they continue to survive merely thanks to the cash granted them by you, taxpayers.

Thursday, August 27, 2009

Oil tech update

Oil is still heading for the high target at 78/80 and it should take another 3-4 weeks to get there. Confirming my sector choice that oil stocks have still to go a bit higher against all odds but they look really cheap in comparison to other sectors. Thereafter we should see a sharp pulback towards the 60 level. The BDI (Baltic Dry Index) clearly points to an sharp decline in global activity and oil is again not driven by fundamental demand but the same manipulation we had 2 years ago to the biggest fraction of the equation but its also an expression that real inflation is creeping into the commodities as a result of the excessive money printing of global central banks.

Wednesday, August 26, 2009

Brainstorming Wednesday

0. Some unusual and contradicting activities make me think

a) for a few days the ISE -Index produces unusual high put activity for a top which confirms on one hand that we are not done yet as too many are waiting for a correction. That is also puzzling as in the forward VIX future we have a lot of buying activity as it trades at a rich premium - that is not good for the top scenario (except the case that Goldman and JP Morgan are buying).

b) on the other hand we had unusual activity at the low as well as extreme call buying just one day before the low started ( very unusual I have never seen such a thing in over 20 years).

c) Some sentiment indicators are contradicting with Investor Intel at a top level now but Rydex and ISEE MA's not confirming yet as they are rather neutral.

1. The BDI is an early indicator as it seems turned around in DEC and peaked in June - thats a 3 month lag for the stocks - hence another hint for the SEP top.

The Baltic Dry Index, not exactly a phrase that rolls off an investor's tongue, is signaling plenty of caution these days about the global economy.

container ship
Elaine Thompson / AP

As a gauge of shipping activity along 20 of the world's busiest routes, the BDI is a leading economic indicator used by market insiders to gauge demand for goods.

But while it remains a somewhat arcane measure, the recent sharp drop in the index has drawn increased attention, despite the dramatic rise in US equity markets and the accompanying hopes for economic recovery.

It's been a rough summer for the index, which is not a measure of activity in the Baltics but rather an instrument that traces its name to 1744 and the Virginia and Baltick coffeehouse in London's financial district. The index is weighted toward activity in the Pacific.

The BDI has tumbled about 43 percent since peaking on June 3. That followed a stunning upturn off a low of 663 on Dec. 5, 2008 to the June 3 high of 4,291.

2. The Obama admin against all this upbeat Goldman like Wallstreet bull market pushers have lowered their economic outlook as they have to win the mid term elections and are getting cautious on blowing out to rosy pictures. I saw Hatzius ( chief economist of Goldman) now the last 2 times on Bloomi TV with his upside revisions and although I am not an expert in reading people it was quite obvious to me that he was very uncomfy with what he said like people who are forced to lie and can not really deal with it.


Economy In Much Worse Shape Than Expected: White House
Published: Tuesday, 25 Aug 2009 | 11:22 AM ET

The US economy will shrink far more than expected this year and will rebound much more slowly than forecast after that, according to a bleak new assessment by the White House Budget Office.

The federal government also faces exploding deficits and mounting debt over the next decade, far worse than what the Obama administration had estimated just a few months ago.

The revised estimates project that the economy will contract by 2.8 percent this year, more than twice what the White House predicted earlier this year.

Obama economic adviser Christina Romer projected that the economy would expand in 2010, but by 2 percent instead of the 3.2 percent growth the White House predicted in May. By 2011, Romer estimated, the economy would be humming at 3.6 percent growth.

Figures released by the White House budget office foresee a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May.

3. If the true test of the FED is the market they have failed big time M(o)r(on) Geithner as the market has lost big time the last 10 years - he is really a disgrace for this post as many Obama choices are. The FED is one of the major reasons for this crises and needs to be audited together with all dealings of the Treasury the last 3 years in a full fledged investigation.


Geithner: "Fed Audit Would Be Problematic For The Country"

It is the esteemed Treasury Secretary's opinion, that anything that has to do with demystifying why the Fed is hell bent on destroying the US dollar, killing the middle class, and allowing Lloyd Blankfein to purchase Larry Ellison's yacht collection, is squarely in the "problematic for the country" camp. Never mind that more than half the country (in fact almost two-thirds) have indirectly voiced their support for HR 1207. But at least it is good to know where Geithner's allegiances lie, and even better to see how good at totally perverting facts (not just taxes) the SecTres is.

And the punchline: "The true test of the Fed is the market." Is there a way to give Mr. Geithner an economics test because it seems he might have graduated with a biz-econ degree from Devry.

Tuesday, August 25, 2009

Must see video

NDX - market update

The NDX is in the final stage of building this top and selling is highly recommended for longs - one can even start to build a short position slowly at these levels as some indicators besides the price action do give signals and one segment which is barely represented here is coming to a top as well the XBD and BKX are about to reach tops. The strong resistance line matches the 200 week MA which can be recognised as the invincible barrier for the next 2-3 months. A pullback to the 1350 -1400 zone is the least we should expect in Q4 but within Q1-Q2 next year new lows are the real deal one should trade for. The tricky part as stated before is that even bulls are waiting for a correction soon but with a very limited scope no one sees the lows being tested or even new ones. Tough times are unfortunately ahead as the basic problems have not been solved and the Obama admin has proven the can not handle it but that is also true for almost all governments.

Sentiment update - the top factor is improving but not ready yet

High bullish readings in the Consensus stock index or in the Market Vane stock index usually are signs of Market tops; low ones, market bottoms.

Last Week2 Weeks Ago.3 Weeks Ago
Consensus Index

Consensus Bullish Sentiment43%49%52%
Source: Consensus Inc., P.O. Box 520526,Independence, Mo.
Historical data available at (800) 383-1441.
AAII Index



Source: American Association of Individual Investors,
625 N. Michigan Ave., Chicago, Ill. 60611 (312) 280-0170.
Market Vane

Bullish Consensus47%47%48%
Source: Market Vane, P.O. Box 90490,
Pasadena, CA 91109 (626) 395-7436.
FC Market Sentiment

Source: First Coverage 260 Franklin St., Suite 900
Boston, MA 02110-3112 (617) 303-0180.
FC Market Sentiment is a proprietary indicator derived from actionable sell-side trade ideas sent by the sell-side to their buy-side clients over the First Coverage platform. Over 1,000 institutional sales people at more than 250 firms participate on the First Coverage platform and have contributed hundreds of thousands of ideas since inception. Each Idea is associated with a ticker or sector and is tagged bullish or bearish by the creator. This data is aggregated at the sector, industry and market level. The FC Market Sentiment score ranges from 0-100 (0=most bearish, 50=neutral, and 100=most bullish) and represents a completely objective, real-time view into what advice the sell-side is providing to their buy-side clients

Citigroup Panic/Euphoria Model
Market Sentiment

Brainstorming Tuesday

1. Interesting FED day as a bit suprisingly for me Obama gave Bernanke an undeserved second term ( thats why he was in such a good mood). Well still better than Summers probably choosing between 2 evils. Same time a court ruled that the FED has to ...

Excerpt zerohedge

Just out from Bloomberg:

Aug. 24 (Bloomberg) -- The Federal Reserve must make public reports about recipients of emergency loans from U.S. taxpayers under programs created to address the financial crisis, a federal judge ruled.

This is in relation to a lawsuit filed by Bloomberg LP against the Federal Reserve on November 7, 2008, in Southern District of New York (08-09595), in which Bloomberg sought material loan and collateral data in relation to emergency loans released by the Fed, and which were previously claimed to be non-FOIAble.

This is a large blow against the Fed and specifically against organizations using FOIA loopholes from providing critical information, particularly in cases involving trillions of taxpayer dollars bailing out huge, systematically and politically embedded financial organizations (which lately is pretty much all of them).

The conclusion from the order just issued by District Judge Loretta Preska is as follows:

The Board's Motion for Summary Judgment is DENIED, and Bloomberg's Motion for Summary Judgment is GRANTED. Specifically:

1. The Board shall produce forwith the Remaining Term Reports within five business days of the date hereof;

2. The Board shall search forthwith records at the FRBNY that constitute "Records of the Board" within the meaning of 12 C.F.R. # 231.2(i)(1); and

3. The parties shall confer following their review of the results of the search and inform the Court by letter no later than September 14, 2009 how they propose to proceed.

2. Goldman's insider ring gets investigated

Excerpt zerohedge

First the Fed, now Goldman Sachs. Hot off the presses:

Examiners at the Financial Regulatory Authority, the industry self-regulatory body known as Finra, and the Securities and Exchange Commission intend to ask Goldman for more information on these weekly get-togethers, people familiar with the matter said.

This of course is in relation to the article that the WSJ printed yesterday on advance research looks that Goldman was providing to its preferential clients.

The huddles currently aren't disclosed in Goldman's long-term research, although the firm Monday discussed adding disclosure on its client Web site about the service. Some other firms, such as Morgan Stanley, also give stock ideas to clients, but disclose the service in their longer-term research and on their Web site.

Securities laws require firms such as Goldman to engage in "fair dealing with customers" and prohibit analysts from issuing opinions that are at odds with their true beliefs about a stock. Research reports can often cause a stock to rise or fall.

Can someone please explain how FINRA and the SEC would actually chase the perpetrators of market injustice if it wasn't for the occasional articles in the mainstream media and the blogosphere providing them with the blueprints from A to Z of exactly how the big, "entrenched" firms game the "efficient" markets day in and day out?

Last time we checked, the SEC's 2009 budget was almost $1 billion. What the hell does this money go for aside for covering up massive market malfeasance and catching an occasional Ponzi after decades of ignoring incriminatory materials?

It is time to analyze whether the US public has any use for such worthless and expensive organizations as FINRA and the SEC, if at the end of the day the only way to fix a broken system is via a thousand "citizen's" cuts and bypassing Schapiro's utterly useless enterprise, whose only purpose is to serve as a springboard for cushy Wall Street General Counsel jobs.

3. Murdoch will loose plenty readers to say the least when he goes through with his plan to charge fee's - since thr blogger world is anyway the better choice going forward but here a real good piece of mind and example

Excerpt from Larry Flynt's post at Huffington Post - must read

The American government -- which we once called our government -- has been taken over by Wall Street, the mega-corporations and the super-rich. They are the ones who decide our fate. It is this group of powerful elites, the people President Franklin D. Roosevelt called "economic royalists," who choose our elected officials -- indeed, our very form of government. Both Democrats and Republicans dance to the tune of their corporate masters. In America, corporations do not control the government. In America, corporations are the government.

This was never more obvious than with the Wall Street bailout, whereby the very corporations that caused the collapse of our economy were rewarded with taxpayer dollars. So arrogant, so smug were they that, without a moment's hesitation, they took our money -- yours and mine -- to pay their executives multimillion-dollar bonuses, something they continue doing to this very day. They have no shame. They don't care what you and I think about them. Henry Kissinger refers to us as "useless eaters."

But, you say, we have elected a candidate of change. To which I respond: Do these words of President Obama sound like change?

"A culture of irresponsibility took root, from Wall Street to Washington to Main Street."
There it is. Right there. We are Main Street. We must, according to our president, share the blame. He went on to say: "And a regulatory regime basically crafted in the wake of a 20th-century economic crisis -- the Great Depression -- was overwhelmed by the speed, scope and sophistication of a 21st-century global economy."

This is nonsense.

The reason Wall Street was able to game the system the way it did -- knowing that they would become rich at the expense of the American people (oh, yes, they most certainly knew that) -- was because the financial elite had bribed our legislators to roll back the protections enacted after the Stock Market Crash of 1929.

Congress gutted the Glass-Steagall Act, which separated commercial lending banks from investment banks, and passed the Commodity Futures Modernization Act, which allowed for self-regulation with no oversight. The Securities and Exchange Commission subsequently revised its rules to allow for even less oversight -- and we've all seen how well that worked out. To date, no serious legislation has been offered by the Obama administration to correct these problems.

Instead, Obama wants to increase the oversight power of the Federal Reserve. Never mind that it already had significant oversight power before our most recent economic meltdown, yet failed to take action. Never mind that the Fed is not a government agency but a cartel of private bankers that cannot be held accountable by Washington. Whatever the Fed does with these supposed new oversight powers will be behind closed doors.

Obama's failure to act sends one message loud and clear: He cannot stand up to the powerful Wall Street interests that supplied the bulk of his campaign money for the 2008 election. Nor, for that matter, can Congress, for much the same reason.

Consider what multibillionaire banker David Rockefeller wrote in his 2002 memoirs:

"Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure -- one world, if you will. If that's the charge, I stand guilty, and I am proud of it."

Read Rockefeller's words again. He actually admits to working against the "best interests of the United States."

Need more? Here's what Rockefeller said in 1994 at a U.N. dinner: "We are on the verge of a global transformation. All we need is the right major crisis, and the nations will accept the New World Order." They're gaming us. Our country has been stolen from us.

Journalist Matt Taibbi, writing in Rolling Stone, notes that esteemed economist John Kenneth Galbraith laid the 1929 crash at the feet of banking giant Goldman Sachs. Taibbi goes on to say that Goldman Sachs has been behind every other economic downturn as well, including the most recent one. As if that wasn't enough, Goldman Sachs even had a hand in pushing gas prices up to $4 a gallon.

The problem with bankers is longstanding. Here's what one of our Founding Fathers, Thomas Jefferson, had to say about them:

"If the American people ever allow private banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their father's conquered."

We all know that the first American Revolution officially began in 1776, with the Declaration of Independence. Less well known is that the single strongest motivating factor for revolution was the colonists' attempt to free themselves from the Bank of England. But how many of you know about the second revolution, referred to by historians as Shays' Rebellion? It took place in 1786-87, and once again the banks were the cause. This time they were putting the screws to America's farmers.

Daniel Shays was a farmer in western Massachusetts. Like many other farmers of the day, he was being driven into bankruptcy by the banks' predatory lending practices. (Sound familiar?) Rallying other farmers to his side, Shays led his rebels in an attack on the courts and the local armory. The rebellion itself failed, but a message had been sent: The bankers (and the politicians who supported them) ultimately backed off. As Thomas Jefferson famously quipped in regard to the insurrection: "A little rebellion now and then is a good thing. The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."

Perhaps it's time to consider that option once again.

I'm calling for a national strike, one designed to close the country down for a day. The intent? Real campaign-finance reform and strong restrictions on lobbying. Because nothing will change until we take corporate money out of politics. Nothing will improve until our politicians are once again answerable to their constituents, not the rich and powerful.

Let's set a date. No one goes to work. No one buys anything. And if that isn't effective -- if the politicians ignore us -- we do it again. And again. And again.

The real war is not between the left and the right. It is between the average American and the ruling class. If we come together on this single issue, everything else will resolve itself. It's time we took back our government from those who would make us their slaves.

Monday, August 24, 2009

Brainstorming Monday

1. Wonder why the Birinyi thesis did not work out in many other cases like 1930 to give the most significant sample or Japan had plenty rallies after 1990 - I rather say the rally from 2003 to 2007 was not based on reallity but that is not really important afterall as we see it purely from the perspective of an investor. What we need as we buy stocks at 1035 SPX is to have it go up to 1200 within 12 months and not falling more than back to 980 in the same period as a good investment should not carry more than a 1:3 ratio risk reward profile. Lets assume we really go up to 1200 for a moment I would bet any amount that in the same 12 months we alos see a pullback of 10 % from current levels plus as we reach 1200 no one will exit anyway. As no one in investor terms does exit tops ever even gurus like Buffett did not - he even went along and wrote big amounts of puts close to the highs. When you bought the highs of the year 2000 you need the SPX now to go up to 2440 to break even with someone who sold at 1500 SPX investing in a 5 % coupon 10 year bond (interest reinvested).

see video below for the thesis

2. Read this good piece from zerohedge about Goldman's special treatment for preferred clients


Zero Hedge has long been discussing the impact of selective informational disclosure, be it in the context of trading or research asymmetries, which promote a two-tiered market, where privileged accounts of major broker dealers receive "tips" ahead of "everyone else." The quid's pro quo is that these "privileged" few end up executing the bulk of their trades with the broker-dealer, thus ramping up riskless agency revenues. In essence the clients' capital risk is mitigated, while the return to the "perpetrator" is augmented by collecting a disproportionate share of the bid/offer spread in the given security. Whether this tiering mechanism occurs via Flash orders, SLP provisioning, actionable IOIs, advance selective notice of a large flow order, a phone call, a limited Bloomberg blast, or an Instant Message, the ethics of the practice are undoubtedly shady, and potentially borderline criminal. But no one is the wiser, as both sender and receiver of information know to keep their mouth shut. Until today, when the WSJ blows one aspect of this practice out of the water, by focusing on Goldman's selective informational disclosure to preferred clients, and is likely to create much more headache for Goldman's PR department and its staunchest CNBC-based prosecutor-turned-supporter and soon to be Sellout author.

In a long-overdue article titled "Goldman's Trading Tips Reward Its Biggest Clients" author Susanne Craig brings much of the firm's dirty laundry to the front page. While a must read for anyone interested in how Goldman Sachs "cultivates" its key client relationships, the summary is as follows:

Goldman Sachs Group Inc. research analyst Marc Irizarry's published rating on mutual-fund manager Janus Capital Group Inc. was a lackluster "neutral" in early April 2008. But at an internal meeting that month, the analyst told dozens of Goldman's traders the stock was likely to head higher, company documents show.

The next day, research-department employees at Goldman called about 50 favored clients of the big securities firm with the same tip, including hedge-fund companies Citadel Investment Group and SAC Capital Advisors, the documents indicate. Readers of Mr. Irizarry's research didn't find out he was bullish until his written report was issued six days later, after Janus shares had jumped 5.8%.

This pretty much summarizes the "magical" performance that many hedge funds generated in Wall Street's golden age: Goldman (and other firms, many of which however now are defunct) treated several clients preferentially, creating a "club" in any given name, running it up, then releasing what the club already knew to the broader investing public, as the club unloaded its positions to the witless majority. And this went on for many years, and in many aspects, still does.

Critics complain that Goldman's distribution of the trading ideas only to its own traders and key clients hurts other customers who aren't given the opportunity to trade on the information.

Securities laws require firms like Goldman to engage in "fair dealing with customers," and prohibit analysts from issuing opinions that are at odds with their true beliefs about a stock. Steven Strongin, Goldman's stock research chief, says no one gains an unfair advantage from its trading huddles, and that the short-term-trading ideas are not contrary to the longer-term stock forecasts in its written research.

Not contrary indeed, just useful, selective, tongue-in-cheek hints that provide a 10% front-running riskless arbitrage to those lucky enough to trade hundreds of millions of [stocks/bonds/CDS/options/fx/treasuries/munis] with the 85 Broad Financial Holding Company.

Ed Canaday, whom Zero Hedge respects very much for always proferring accurate and unspun information, is prompt in explaining this situation:

Goldman spokesman Edward Canaday says the tips are "market color" and "always consistent with the fundamental analysis" in published research reports. "Analysts are expected to discuss events that may have a near-term or short-term impact on a stock's price," he says, even if that is a different direction from an analyst's overall forecast. Goldman's published research reports include a disclosure that "salespeople, traders and other professionals" may take positions that are contrary to the opinions expressed in reports. But the firm doesn't disclose the trading huddles.

Mr. Canaday says analysts are told that any comment at a meeting that could result in a change in a rating, earnings estimate or stock-price target "must be published and disseminated broadly to all clients." He adds, however, that it is rare that tips arising from the meetings reach that threshold.

Rare, last time we checked, had a special judicial meaning, that was almost on par with never. But not quite. Mr. Canaday elaborates further:

The tips usually go to top clients who have expressed interest in having the information and have short-term investment horizons, he says. Goldman doesn't want to overload other clients with information that isn't relevant to them, he says. "We are not in the business of serving thousands of retail customers," he says.

Indeed- the firm is purely in the business of making sure the several dozen multi-billion hedge funds it does serve make practically risk free returns by taking advantage of the gullibility of John Q. Public, who is not relevant enough to be addressed by Goldman's massive trading floor, yet whose bail out is more than welcome when the firm's stock price is in the mid $50's, and about to hit $0.

So what does the law say about this:

"The spirit of the law is twofold," says Eric Dinallo, who in 2003, when serving as a deputy to former New York Attorney General Eliot Spitzer, helped negotiate a $1.4 billion stock-research settlement with 10 major Wall Street firms, including Goldman. "Analysts should give consistent advice to all their customers, be they small investors or big trading clients." Any views that differ from an analyst's published rating but are "worth sharing with certain customers," he says, should be made "available to everyone."

Mr. Cuomo, we hope you read this (we know you are).

Yet, most entertaining, in this little transgression is the presence of who else than the Federal Reserve:

The research business is considered a loss leader at most firms, despite persistent attempts by Goldman and other securities giants to squeeze more revenue from it. Goldman was looking for a leg up on rivals when it started the trading huddles in 2007. That year, Goldman ranked ninth in Institutional Investor magazine's annual list of the best equity analysts, as determined by a survey of big institutional investors. Goldman was rated eighth in last year's competition.

The huddles began in earnest around the time Goldman's research department got a new boss, Mr. Strongin. He came to the firm in 1994 from the Federal Reserve Bank of Chicago, where he had been director of monetary-policy research.

The great confluence of the two greatest things in the world, the Fed, and Chicago-style goal pursuit, sure got the job done:

Mr. Strongin, 51 years old, set out to improve Goldman's research operations. The firm asked important clients for suggestions. One idea that took hold was giving certain customers and traders more access to stock tips.

The idea was controversial with some Goldman research staffers. "I am not sure we should be giving recommendations that go against our research," said one Goldman employee at a meeting where the trading huddles were discussed, according to one attendee.

Institutional memory truly is short - certain customers getting privileged information a mere 4 years after the settlement: have we gotten your attention now Mr. Cuomo?

So just who are the proud nominees of Goldman's insider club:

Documents reviewed by the Journal indicate that anywhere from six to 60 clients are contacted, depending on the investment. For example, clients specializing in financial stocks are given recommendations about that sector. Each call typically includes comments about the overall market and the kinds of investors Goldman believes are propelling it, and ends with a stock tip.

And lest someone think that Goldman's ubiquitous prop trading group is somehow exempt from benefiting in this backdoor arrangement, read on:

The meeting where Mr. Irizarry suggested that Janus shares were worth buying, held on April 2, 2008, was attended by Goldman's financial-research analysts and traders who handle customer orders. It also included another class of traders called "franchise risk managers," who sit with and advise the traders handling customer orders -- and make bets with Goldman's money.

Typically, traders who wager firm capital are walled off from those handling customer orders so that they don't take advantage of information about client trading, which securities regulations forbid. Goldman says its franchise risk managers don't trade on client information and must first share trading-huddle tips with clients before acting on the tips themselves.

"Typically", just like "rare", are two of legal counsel's favorite expressions. But at least we have Goldman's affirmations that everything at the big firms runs according to regulations. After all, in numerous prior transgressions that company has "neither admitted nor denied guilt" - why should this change now?

And as for the regulators: it is good to know that at least they are on top of this scheme.

Last year, the Financial Industry Regulatory Authority, the industry's self-regulatory body, proposed new rules meant to clarify existing disclosure obligations under the rule requiring "fair dealing" with all clients. Firms could issue contradictory ratings as long as clients were told that such inconsistencies were possible.

A Finra spokesman said the agency still is reviewing comment letters filed in response to the proposal. Goldman hasn't commented on the proposed rules.

SPX red alert- investors should head for exits

target zone 1030-50The SPX has (almost) reached the - time to sell substantial portions the next days. One only needs to be very discriminating as some sectors will still have some scope as oil related stocks might still do better we have not reached my target of 78/80 yet.Ironically also some financials have some margin left but with a far bigger risk. But that are not trades for investors - the tricky part will be that we are not really ready for a big retreat yet as some of my indicators are not at the levels they need to be and quite some people looking for a correction (even bulls) makes it tougher not to run into the trap that this manipulation pool wants to create. They will let the market retreat a bit and lift it back up so we should see a kind of double top around 1035/50 over the next 3 weeks and we will see an intermarket divergence as the NDX will have the top earlier as China had.

Saturday, August 22, 2009

We Saved The World!


We Saved The World!

All eyes on Jackson Hole today, as the world's Plutocrats assemble to "discuss issues" related to the safety and stability of the global financial system. When in reality, they were high-fiving, partying, enjoying booze, escorts, and fine food.

Bernanke begins by proclaiming how he "saved the world" from being enveloped in a total collapse from quadrillions of derivative bets gone bad.

After that statement was issued, and photo shoots were concluded, it was pretty much back the original intended schedule:


Bernanke, Trichet, Shiracowa, Weber, etc. assemble in the rec hall for a game of poker:


Lunch, and more photo ops with Steve "Yeastman" of CNBC, who congratulates everyone for bringing in the government to micromanage the economy, stock markets, and credit markets:

Head to the bar for some drinks, meanwhile, laughing at how easy it is to jam stock futures in the early morning hours after a horrific collapse during Asian trading.


Call in the 15-year old Asian massage girls for a rubdown

And of course there will be a fancy dinner, more drinks, more card playing, and plenty of swimsuit models at the end of the night.

Today, pretty much another "Junker Run" as homebuilders, reits, etc. of the worst quality were being gunned the hardest.

Led, of course, by the companies like Maguire Properties which are at the closest to bankruptcy.

Friday, August 21, 2009

Brainstorming Friday

1. The 1000 blow off with the New Moon goes as expected and a close above the 1018/20 will trigger follow through fools rush in action - not talking about traders but people who think they get much higher prices going forward. I am afraid if you have a gift you might squeeze out some if you catch the right sectors as we will have hefty sector rotation. But its going to be a painful trip as we already at Tuesday / Wednesday may start a volatile correction for the rest of the week. The days towards month end and Labour day will be to the upside again but starting the 8th Sep people will be very nervous for any setback as many are looking for a correction. Volatility will rise in any case and a nerve wrecking trading time will frustrate bulls and bears for the most of Sep.

2. Existing Home Sales rose due to deep discounts and the pressure of the final weeks of the first buyer perks from the government - this is a one time special effect creating this effect and has nothing to do with sustainable economic activity. After Nov we can expect existing home sales to retreat again as the subsidies will be off.

Sales of previously owned U.S. homes in July notched their fastest pace in nearly two years, an industry survey showed Friday, the strongest sign yet that housing was pulling out of a three-year slump.

The National Association of Realtors said that sales jumped 7.2 percent to an annual rate of 5.24 million units, the highest since August 2007, beating market expectations for a 5 million unit pace.


The median sales price was $178,400, down 15 percent from $210,100 in the same month last year.

3. Finally Prof. Stiglitz came out with the goal as he urged to create a reserve currency which is the agenda of the Bilderberger as the groundwork to create a global central bank - all milestones of the New World Order. It appears as Talebi said recently noone with a tie and a suit can be trusted. I do not see any benefits of an artificial currency which can be even more manipulated as their is no natural demand and flow.

4. Bernanke upbeat about the recovery of the global economies, trying to tout his own horn - Summers will take over as Obama could have announced his renewed term long ago. Besides none of his economic calls have turned out to be right as his P/L is as poor as it gets as a depression' specialist'. Summers will not be any better though but he can use the old trick to blame all on Bernanke once he takes over but lets remember he is a close protege of Rockefeller and does not work for Mainstreet hence no improvement can be xpected rather a more evil brain will run the FED then.

5. Most important criteria to be hired for Bloomi TV seems to be stupidity beyond bearable levels - they should offer Bush a job as anchorman - he would fit right in - Clinton might love to join him as he could chase all the young pretty chicks. They are reporting all day that one off the biggest criminals of this century D. Fuld sold his appartment for 26 mil. - still believe he belongs in one cell with Madoff.

Thursday, August 20, 2009

Brainstorming Thursday

1. The new CEO ( Benmosche) of AIG seems to be even a bigger moron than all the others - his first action on the job is to fly out on a vacation but even worse he says from that place in Macedonia that AIG will repay the government funds - is this guy just another Goldman pupett or brain dead to make such a false claims.

2. New Moon effect at work markets rising on fake statistics and claims but the idea seems to be pretty much 1000 expiration settlement.

3. Barron's since Murduch took over has been in a degeneration or quality crash the called GM around 10 a buy and declared a few weeks ago EK would go to zero just to give 2 examples of their plenty horror calls.

4. The real metric to see where we are is the housing situation since the crisis was triggered and caused by the insane bets nade in this field as the banks did not take the marks as required they sit on ever imploding assets and FDIC is already out of money - more trouble ahead.

Delinquencies shooting through the roof now with even increasingly prime borrowers they do not include foreclosures they come on top.


The delinquency rate breaks the record set last quarter. The records are based on MBA data dating back to 1972. The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.

The percentage of loans in the foreclosure process at the end of the second quarter was 4.30 percent, an increase of 45 basis points from 3.85 percent the first quarter of 2009 and 155 basis points from 2.75 percent one year ago.

SPX - market update

The screwing around the 1000 comes to an end as today's New Moon in Leo opposite Neptun ( faking people) should start the blow above 1000 right after expiration. The only thing troubling me is too many people are looking for a correction in Sep which is always a bad omen. Therefor I tend to think that for the big expiration in Sep we will see another screwing - we will get definitely more volatility as the Index should oscillate in a 10% range at least but even 20% is possible but be followed by a sharp upswing confirming the 'uptrend' charade. Expect a drop to 930 from 1030-50 in the late Sep another upside attempt followed by a second downwave in Oct to 830. That would still be considered a healthy correction from the bullish crowd - now everything will depend on the fact if the Obama admin pulls the last joker a second stimulus package to save the year for Wallstreet since they need a plus year - although they could make a killing by trading the yield curve as a sinking stock market would bring in big profits with zero financing - driving bonds higher.Problem they would not have the moral grounds to pay themselves big bonuses with a weak stock market as the public would be upset. The only way they could achieve that would be by bringing the SPX to 1000 at year end and Obama wants to be able to drew a 1 year bottom line picture on the hero side as well so he will support a short lived illusion.

Wednesday, August 19, 2009

Levitt another member of the wall of shame

Just listened to Levitt ( who is on the payroll of Goldman - what a surprise to have the former chairman of the SEC)- what a moron - he said we have to honour contracts coming as a comment for the Phibro executive claiming his 100 mil pay. Is this idiot out of his minds how low can these cheap greedy guys sink in their prudence and dignity. Citibank is and was bankrupt how can the honour any contract based on perverse assumptions that the few winners who never could earn the losses of the other units claim their money as they agreed to work for Citi which is broke and carries a contractial risk - that is the real contract. Same applies for Geithner and Bernanke defending 100% payouts for the AIG swaps and close to zero for Lehman that is neither prudent nor does it carry any logic.


Levitt, Advisor To Goldman And Getco, Voices For HFT

Arthur Levitt, former chairman of the SEC, writes an Op-Ed in the WSJ on HFT, titled "Don't set speed limits on trading" providing the usual justification for the phenomenon, claiming it "contributes significantly to market liquidity, a critical measure of market health and something all investors value."

Alas, this is at the very essence of the debate: while liquidity may be incremental, the question is just how critical is it in light of the creeping slippage costs associated with the monopolization of liquidity provisioning by a select few. The "toll" collected by the few HFT vendors out there has been shown to be a substantial number: is it any surprise that Mr. Levitt vocal defense of an increasingly more spotlighted HFT comes at a time when he as advisor not only to HFT provider Getco but also to primary NYSE PT monopolist Goldman Sachs. Granted, Mr. Levitt does not disclose these conflicts of interest in his piece - perhaps the information would be seen in a slightly different light were that to be the case. Levitt claims the following:

But this debate is not just about the rarified world of high-frequency traders, dominated by superfast computing and trading by advanced algorithms. It's fundamentally about the competitiveness and health of U.S. markets, and the ease with which all investors are able to find willing buyers and sellers. Small investors may never directly use a high-frequency trading strategy in their lives, but they have a very large stake in whether such strategies are regulated out of existence, as is now urged by some in Congress, the media and Wall Street.

High-frequency trading is, in many respects, just the next stage in the ongoing technological innovation of financial markets. Just as paper tickets for trades were replaced by computer orders, and the trading floor seen on television was made largely irrelevant by electronic exchanges, so has high-frequency trading revolutionized the way most U.S. stocks and related investment products are priced and sold.

Indeed, Mr. Levitt is happy to point out the evolutionary aspect of HFT which we do not disagree with, however the fundamental question is whether the extensive stock churn that is controlled by a select few who have the means for a positive IRR on such an investment to take advantage of the windfalls, is merited especially in light of the oligopolistic nature of the HFT landscape. One needs merely to look at how promptly the Misha Malyshev led Teza was ejected from the ranks of the HFT players after what will soon evolve to be a fabricated scandal using Sergey Aleynikov as its primary pawn.

Another point Mr. Levitt brings up:

Others simply assert that all high-frequency trading has no moral or underlying economic value, and that high-frequency trading is simply a game for those who want to profit from getting access to data a split-second ahead of someone else. The Securities and Exchange Commission should ignore these complaints and the caricature that has developed of high-frequency traders.

If the SEC had ignored complaints about Flash trading, no doubt Mr. Levitt would characterize these as a caricature of trading protocols as well (or maybe not, as Direct Edge competes directly with the monopoly of the GS-NYSE complex in HFT, in which the former SEC chairman has a vested interest).

However, Mr. Levitt's conclusion is troubling:

We should not set a speed limit to slow everyone down to the pace set by those unwilling or unable to compete at the highest levels of market activity. Investors large and small have always been served well by those looking to build the deepest possible pool of potential buyers and sellers, make trades at a better price, and all as quickly as possible.

Keyword here being "unable to compete" - just how does that tie in with Mr. Levitt's thesis that all of this is merely a service for the common good, oddly in light with Goldman's recently amended mission statement.

Furthermore, where is the defense of dark liquidity and actionable IOIs - two key concepts that serve at the nexus of visible HFT and the activities (unknown to the majority of market participants) that occur below the surface? Levitt can not defend one without touching on these other major issues, yet he conveniently chooses to ignore their implications.

Lastly, as expected, nowhere in his fluff piece does Mr. Levitt acknowledge or discuss any of the risks associated with HFT: for a good primer on that, we would refer Arthur to a piece written less than a month ago by one Paul Wilmott, a name that has much more practical and vested authority on the matter than a conflicted bureaucrat who is obviously merely pushing the "party line" of his two primary advisory clients.

Wednesday brainstorming - Berlusconi special

0. Sony came up with quite a coup as they not only lowered the price more than most asked for but came up with a big improvement on the console itself at 299$ it will be one of the top selling items for Christmas - will have a look of the charts to see how much potential/scope is left.

1. Bloombergs very manipulative and false reports as they claim China has entered a bear market in August - fact is the whole world is still in a major bear market within an economic depression cycle. The fact that mass media and politicians try to deny that does not change the reality. All other markets will follow Chişna's move shortly as the stocks are completely overpriced. Goldman just 4 months ago insisted earning for 2010 SPX would be around 42 $ around the lows now at the highs they come up with 70$ - that speaks volumes with me commenting it. Never forget Bloomberg total income resource are banks who need bull markets to make money hence Bloomberg will always participate naturally in a very manipulative upside scam.

China Stock Index Plunges, Briefly Enters Bear Market

Aug. 19 (Bloomberg) -- China’s stocks fell, briefly driving the benchmark index into a so-called bear market, on concern tighter lending will damp economic growth.

The Shanghai Composite Index lost 4.3 percent to 2,785.58, as China Shenhua Energy Co., the nation’s largest coal producer, sank 6.8 percent, the most since Feb. 18, and Citic Securities Co., the biggest brokerage, sank 7.8 percent.

The gauge has slumped 19.8 percent since this year’s high on Aug. 4, after more than doubling from November’s low as China rolled out a 4 trillion yuan ($585 billion) stimulus package. A plunge in new bank loans in July, disappointing earnings and concern the government will seek to damp property market speculation has sapped confidence.

2. Interesting is that Berlusconi is suddenly in the center of sex scandals - not because he is a decent man as his bias for the ladies is obvious and I have no doubt he participated or organized wild parties - if you ever have seen the movie 'Eyes wild shut' - that were not fantasies but pure reality of the escapades the elite is having. Those kind of things never changed through history- ancient Egyptians did is as the Romans and slavery is a common practice again where Manhattan is full of imported child slaves working for families as 'servants'. Degeneration and perversion of societies signal the end of those and are very common in those stages. Even Obama could not help to look after a juicy young lady at the Italian Summit. Coming back to the Berlusconi situation I think that he is having powerful people playing him into the foul zone as he always has done what he does know but that it is pulled out to the open means he must have fallen to disgrace within their ranks. After Berlusconi graduated University a bank gave him a big credit to start a real estate company right away. The bank which did that was famous for being the Mafias hub and his father was a director at this bank. He was never a real businessman just the camouflage puppet to develop legal 'Mafia' business. Interesting is that his biggest official enemy in mass media is the 'Economist' - fully owned by Rothschild's as we have here to competing forces - one is the Jewish bank and oil gang Rothschild,Rockefeller and their opponent the Vatican right wing gang - who are 2 of a handful powerful secret rulers of this planet now for a few hundred years. Interestingly communism was invented by this Jewish Banker families to destabilize the old rulers in kingdoms power and they were quite successful in that operation over centuries. The current attack on Berlusconi could be an attempt to weaken the right wing competitors influence over Italy which is their home turf.


Clear record up to now

Silvio Berlusconi has an extensive record of criminal allegations, including mafia collusion, false accounting, tax fraud, corruption and bribery of police officers and judges. Berlusconi has been tried in Italian courts in several cases. In three of them accusations were dropped by the judiciary because of the laws passed by Berlusconi's parliamentary majority shortening the time limit for prosecution of various offences and making false accounting illegal only if there is a specific damaged party reporting the fact to the authorities.[78][79] In all of them, but one, he was acquitted, either by a court of first instance or on appeal, or when proceedings came to a halt because the statute of limitations had expired. Therefore he has a clear record up to now. Berlusconi claimed that "this is a manifest judicial persecution, against which I am proud to resist, and the fact that my resistance and sacrifice will give the Italians a more fair and efficient judicial system makes me even more proud",[80] and added that "789 prosecutors and magistrates took an interest in the politician Berlusconi from 1994 to 2006 with the aim of subverting the votes of the Italian people" reeling off statistics that he said have constituted a "calvary including 577 visits by police, 2,500 court hearings and 174 million euros in lawyers' bills paid by me".[81][82][83] Berlusconi has always been able to afford top lawyers, for example Nicolas Sarkozy was one of his french top advocates.[84][85][86] Some of his former prosecutors are members of the parliamentary opposition. Some of his attorneys are also members of parliament.

Delaying tactics

The Italian legal system allows the statute of limitations to continue to run during the course of the trial. Consequently, the delaying tactics adopted by Berlusconi's attorneys (including repeated motions for change of venue) have served to nullify pending charges on many occasions. Some of Berlusconi's close collaborators, friends and firm managers have been found guilty of related crimes, notably his brother, Paolo, who in 2001 agreed to pay 100,000,000 Italian Liras (52,000 Euros) as a plea bargain for various charges including corruption.

False testimony regarding membership of the "Propaganda 2" (P2) masonic lodge

Receipt for membership of Silvio Berlusconi to "Propaganda 2" (P2) masonic lodge

In 1981, a scandal arose after the police discovery of Licio Gelli's secret freemasonry lodge Propaganda 2 (P2), which aimed to change the Italian political system to a more authoritarian regime to oppose communism. The list of people involved in P2 included members of the secret services and some prominent characters from political arena, business, military and media. Silvio Berlusconi, who was then just starting to gain popularity as the founder and owner of "Canale 5" TV channel, was listed as a member of P2.[87][88] The P2 lodge was dissolved by the Italian Parliament in December 1981 and a law was passed declaring similar organizations illegal, but no specific crimes were alleged against individual members of the P2 lodge.[citation needed].

Berlusconi later (in 1989) sued three journalists for libel for writing articles hinting at his involvement in financial crimes. In court, he declared that he had joined the P2 lodge "only for a very short time before the scandal broke" and "he had not even paid the entry fee". Such statements conflicted with the findings of the parliamentary inquiry commission appointed to investigate the lodge's activity, with material evidence, and even with previous testimony of Berlusconi, all of which proved that he had actually been a member of P2 since 1978 and had indeed paid 100,000 Italian liras (52 Euros) as an entry fee. In 1990 the court of appeal of Venice found Berlusconi guilty of false testimony in front of the Court of Verona, however the court did not proceed to sentence because the wrongdoing had been extinguished by an amnesty passed in 1989.[89]

Some political commentators claim that Berlusconi's electoral programme followed the P2 plan.[90]

"Jowellgate"/David Mills bribery case

The link between him and the difficulties of British Culture Secretary, Tessa Jowell, has attracted less media attention in Italy than in the United Kingdom, where the media has sensed a whiff of something scandalous (or at least hypocritical and embarrassing) for the government. David Mills, lawyer husband of the British cabinet minister in the Blair government, had acted for Berlusconi in the early 1990s and has been accused by Italian prosecutors of money laundering and of accepting a gift from Berlusconi in return for friendly evidence given as a prosecution witness against Berlusconi. However, Mills has asserted that the money in question did not come from Berlusconi but from another client. No formal indictment has yet been issued but on 10 March 2006 it was reported that prosecuting magistrates in Italy had submitted evidence to a judge, seeking an indictment for bribery against Berlusconi and Mills27: all parties vehemently deny wrong-doing and Berlusconi commented that the timing showed that the prosecution is political. Berlusconi denied meeting Mills. The British media have not yet unearthed anything to warrant Jowell's resignation or which proves the guilt of Mills, Berlusconi or their intermediaries. Mills separated from his wife around this time. On 17 February 2009, Mills was found guilty of accepting a bribe of about 400,000 Sterling Pounds, allegedly from Silvio Berlusconi. Mills was sentenced to four-and-a-half years in prison. Appeal still pending. [14]


The debate about motives

According to journalists Marco Travaglio and Enzo Biagi, Berlusconi entered politics to save his companies from bankruptcy and himself from convictions.[91] From the very beginning he said it clearly to his associates. Berlusconi's supporters hailed him as the "new man", an outsider who was going to bring a new efficiency to the public bureaucracy and reform the state from top to bottom.

While investigating these matters, three journalists noted the following facts:

  • Mediobanca's annual report about the 10 biggest Italian companies showed that, in 1992, Berlusconi's media and finance group Fininvest had about 7,140 billion lire of debts, 8,193 billion lire of assets (with 35% of liquidity) and a net worth (that is, assets minus debts) of 1,053 billion lire. The asset-debt ratio represented a patrimonial situation bordering on bankruptcy.[citation needed]
  • Between 1992 and 1993, Fininvest was investigated several times by prosecutors in Milan, Turin and Rome. The investigations regarded: alleged bribes (to political parties and public officials with the aim of getting contracts), alleged fake invoicing by Publitalia, the financing of political congresses and abuse of television frequencies.
  • On the other hand Dr. Bruno Vespa notest that "In January 1994, Silvio Berlusconi was under no proceedings. Two members of the staff from the Ministry of the Finances were charged to be corrupted for a minor episode by a Fininvest manager, but the accusation would have later fallen. Aldo Brancher, who was working with Fininvest at the time, was charged for having financed some stands at the "Feste dell'Unità" and "L'Avanti!", and he would have been declared fully not guilty only in 2004. Paolo Berlusconi [Silvio Berlusconi's brother] was instead arrested [...] after the Cavaliere went into politics." After having decided to enter the political arena, Berlusconi was investigated for forty different inquests in less than two years. [92]

Bettino Craxi

Berlusconi's career as an entrepreneur is also often questioned by his detractors. The allegations made against him generally include suspicions about the extremely fast increase of his activity as a construction entrepreneur in years 1961-63, hinting at the possibility that in those years he received money from unknown and possibly illegal sources. These accusations are regarded by Berlusconi and his supporters as empty slander, trying to undermine Berlusconi's reputation of a self-made man. Frequently cited by opponents are also events dating to the 1980s, including supposed "favour exchanges" between Berlusconi and Bettino Craxi, the former Socialist prime minister and leader of the Italian Socialist Party indicted in 1992-94 for various corruption charges. Berlusconi acknowledges a personal friendship with Craxi.

On some occasions, which raised a strong upheaval in the Italian political opposition, laws passed by the Berlusconi administration have effectively delayed ongoing trials on him. Relevant examples are the law reducing punishment for all cases of false accounting and the law on legitimate suspicion, which allowed defendants to request their cases to be moved to another court if they believe that the local judges are biased against them. 7,8 Because of these legislative actions, political opponents accuse Berlusconi of passing these laws on the purpose of protecting himself from legal charges; Berlusconi and his allies, on the other hand, maintain that such laws are consistent with everyone's right to a rapid and just trial, and with the principle of presumption of innocence (garantismo); furthermore, they claim that Berlusconi is being subjected to a political "witch hunt", orchestrated by certain (allegedly left-wing) judges 11.

For such reasons, Berlusconi and his government have an ongoing quarrel with the Italian judiciary, which reached its peak in 2003 when Berlusconi commented to a foreign journalist that judges are "mentally disturbed" and "anthropologically different from the rest of the human race", remarks that he later claimed he meant to be directed to specific judges only, and of a humorous nature12. More seriously, the Berlusconi administration has long been planning a judiciary reform intended to limit the flexibility currently enjoyed by judges and magistrates in their decision-making, but which, according to its critics, will instead limit the magistrature's independence, by de facto subjecting the judiciary to the executive's control. This reform has met almost unanimous dissent from the Italian judges 13,14 and, after three years of debate and struggle, was passed by the Italian parliament in December 2004, but was immediately vetoed by the Italian President, Carlo Azeglio Ciampi 15, who said some of the passed laws were "clearly unconstitutional".

Berlusconi has also been indicted in Spain for charges of tax fraud and violation of anti-trust laws regarding the private TV network Telecinco, but his status as a member of the European Parliament allowed him to gain immunity from prosecution until 2005.16 All the accused have been acquitted by the Spanish "Corte de Casacion" in July 2008.[93][94]

Alleged links to the Mafia

Silvio Berlusconi has never been tried on charges relating to the Mafia, although several Mafia turncoats have stated that Berlusconi had connections with the Sicilian criminal association. The claims arise mostly from the hiring of Vittorio Mangano, charged for Mafia association, as a gardener and stable-man at Berlusconi's Villa San Martino in Arcore, a small town near Milan. It was Berlusconi's friend Marcello Dell'Utri (convicted of extortion in association with Cosa Nostra in 2004) who introduced Mangano to Berlusconi in 1973. [95][96] Berlusconi denied any ties to the Mafia. Marcello Dell'Utri even stated that the Mafia did not exist at all.

Heated debate on this issue emerged again in 2004 when Dell'Utri, the manager of Berlusconi's publishing company Publitalia '80 and a Forza Italia senator was sentenced to nine years by a Palermo court on charge of "external association to the Mafia",[96][97] a sentence describing Dell'Utri as a mediator between the economical interests of Berlusconi and members of the criminal organization. Berlusconi refused to comment on the sentence.

In 1996, a Mafia informer, Salvatore Cancemi, declared that Berlusconi and Dell'Utri were in direct contact with Salvatore Riina, head of the Sicilian Mafia in the 1980s and 90s. Cancemi disclosed that Fininvest, through Marcello Dell'Utri and mafioso Vittorio Mangano, had paid Cosa Nostra 200 million lire (100 000 euro) annually. The alleged contacts, according to Cancemi, were to lead to legislation favourable to Cosa Nostra, in particular the harsh 41-bis prison regime. The underlying premise was that Cosa Nostra would support Berlusconi's Forza Italia party in return for political favours. [98] After a two-year investigation, magistrates closed the inquiry without charges. They did not find evidence to corroborate Cancemi’s allegations. Similarly, a two-year investigation, also launched on evidence from Cancemi, into Berlusconi’s alleged association with the Mafia was closed in 1996.[95]

According to yet another mafia turncoat, Antonino Giuffrè – arrested on 16 April 2002 – the Mafia turned to Berlusconi's Forza Italia party to look after the Mafia's interests, after the decline in the early 1990s of the ruling party Christian Democracy, whose leaders in Sicily looked after the Mafia's interests in Rome. The Mafia's fall out with the Christian Democrats became clear when Salvo Lima was killed in March 1992. "The Lima murder marked the end of an era," Giuffrè told the court. "A new era opened with a new political force on the horizon which provided the guarantees that the Christian Democrats were no longer able to deliver. To be clear, that party was Forza Italia." [99] Dell'Utri was the go-between on a range of legislative efforts to ease pressure on mafiosi in exchange for electoral support, according to Giuffrè. "Dell'Utri was very close to Cosa Nostra and a very good contact point for Berlusconi," he said.[100] Mafia boss Bernardo Provenzano told Giuffrè that they "were in good hands" with Dell'Utri, who was a "serious and trustworthy person". Provenzano stated that the Mafia's judicial problems would be resolved within 10 years after 1992, thanks to the undertakings given by Forza Italia.[96][99] Giuffrè said that Berlusconi himself used to be in touch with Stefano Bontade, a top Mafia boss, in the mid 1970s. At the time Berlusconi still was just a wealthy real estate developer and started his private television empire. Bontade visited Berlusconi's villa in Arcore through his contact Vittorio Mangano.[101] Berlusconi's lawyer dismissed Giuffrè's testimony as "false" and an attempt to discredit the Prime Minister and his party. Giuffrè said that other Mafia representatives who were in contact with Berlusconi included the Palermo Mafia bosses Filippo Graviano and Giuseppe Graviano.[102] The Graviano brothers allegedly treated directly with Berlusconi through the business-man Gianni Letta, somewhere between September/October 1993. The alleged pact with the Mafia fell apart in 2002. Cosa Nostra had achieved nothing.[103]

Dell'Utri's lawyer, Enrico Trantino, dismissed Giuffrè’s allegations as an "anthology of hearsay". He said Giuffrè had perpetuated the trend that every new turncoat would attack Dell'Utri and the former Christian Democrat prime minister Giulio Andreotti in order to earn money and judicial privileges.[101]

The Economist

One of Berlusconi's strongest critics in the media outside Italy is the British weekly The Economist (nicknamed by Berlusconi "The Ecommunist"), which in its issue of the 26 April 2001 carried a title on its front cover, 'Why Silvio Berlusconi is unfit to lead Italy'.[104] The war of words between Berlusconi and The Economist has gained notoriety, with Berlusconi taking the publication to court in Rome and The Economist publishing letters against him.[105] The newspaper claimed that the documentation contained in its article proves that Berlusconi is 'unfit' for office[106] because of his numerous conflicts of interest. Berlusconi claimed the article contained "a series of old accusations" that was an "insult to truth and intelligence".

According to The Economist's findings, Berlusconi, while Prime Minister of Italy, retained effective control of 90% of all national television broadcasting. This figure included stations he owns directly as well as those over which he had indirect control by dint of his position as Prime Minister and his ability to influence the choice of the management bodies of these stations. The Economist has also claimed that the Italian Prime Minister is corrupted and self-serving. A key journalist for The Economist, David Lane, has set out many of these charges in his book Berlusconi's Shadow.[107]

Lane points out that Berlusconi has not defended himself in court against the main charges, but has relied upon political and legal manipulations, most notably by changing the statute of limitation to prevent charges being completed in the first place. In order to publicly prove the truth of the documented accusations contained in their articles, the newspaper has publicly challenged Berlusconi to sue The Economist for libel. Berlusconi did so[108], losing versus The Economist, and being charged for all the trial costs on 5 September 2008, when the Court in Milan issued a judgment rejecting all Mr Berlusconi's claims and sentenced him to compensate for legal expenses.

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