THE DOT - if this turns orange or red be alert

Sunday, February 28, 2010

Brainstorming Monday - part 1

1. First of all a perfect start into the week with a gap and a rescue package for Greece on Full Moon opposing Jupiter (blown up hopes for rescue) - bringing a little climax to this final leg up as expected. Another factor adding to this gap higher top pattern is the Venus - Uranus conjunction on the 3rd plus that the Bradley Siderograph gives a turning point on the 1st March.
We have a battery of Seq weekly 12 counts per last week adding to the evidence that a crucial top is about to unfold within the next 2 weeks (rather a 60/40 chance for current week) as we also are close to our target at 1120/5 SPX.


The major geocosmic signature present this week is Venus conjunct Uranus on Wednesday, March 3. This is a Level 1 geocosmic signature, according to studies presented in “The Ultimate Book on Stock Market Timing, Volume 3: Geocosmic Correlations to Trading Cycles.” It has a 72% historical rate of frequency to primary or greater cycles within an orb of 12 trading days. It is not likely to be a primary cycle crest, as it is too early for that to happen if this is a new primary cycle. But it could coincide with a primary cycle trough if it is an older primary cycle. You will know this is the case if the DJIA starts to break back below 10,000.

But Financial Astrology is not so simple as to depend upon only one isolated signature. We should also consider that after it conjuncts Venus, it will then make an opposition to Saturn on March 9, thus bringing into play the larger Saturn-Uranus opposition. Venus-Saturn in conjunction is also a Level 1 signature, which a 71% historical rate of frequency to primary or greater cycles within 13 trading days.

And it doesn’t end there either. Two trading days later on March 11, Venus will square Pluto, yet another Level 1 signature. This one has a 68% correlation to primary or greater cycles within 9 trading days. Basically what we have is Venus translating the forthcoming Saturn-Uranus-Pluto T-square, or the “Cardinal Climax” set up. For those who have been reading this column for many months, or even years, you know that powerful but rare astrological set up peaks in 2010. It hasn’t happened since 1930-1931. We can anticipate that the market climate of March 3-11 will provide a glimpse of the issues the world is struggling with under this momentous Cardinal Climax.

But even then it doesn’t end, for the transiting Sun will then make the same aspects to the same Cardinal Climax planets March 17-25. That is, the Sun will first conjunct Uranus, then make an opposition to Saturn, followed by a square to Pluto. Now you can see why March is setting up to be the most explosive month of this new year so far.

2. Sentiment still neutral to slightly negative from a contrarian point of view as also Put / Call activity is still Put biased and Rydex still bearish.


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 Sentiment53%51%56%
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 Consensus51%53%50%
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, February 26, 2010

NEW (for us) level of fraud and backdoor bailout of banks

The pay back of TARP money has proven to be a pure charade as the FED is busy with the GSE'S buying all the toxic stuff from banks - that is something we knew already but here is another level of the FED/DC - Bankster fraud - they just increase the guarantees for the banks bad loans secretly.


Bank of America Gaming Government Loan Guarantees

I have long suspected that it was only a matter of time before banks began to adjust their Collection efforts to reflect Government Guarantees on their loan portfolios.

Simply put, imagine you are a bank with $100 billion in loans. Of this, $20 Billion is guaranteed by the government, $80 billion is your own money. If you managed the collection organization responsible for servicing this debt wouldn't you be just a wee bit tempted to make sure that your $80 billion was getting the priority?

The table below details the past 12 quarters of Total Loans for Bank of America along with the portion that is Noncurrent:

The Noncurrent percentage has jumped from 5.30% in Q3 to 6.75% in Q4. Quarter on Quarter there is another $12.44 Billion in Noncurrent loans.

The next table details the same 12 quarters and reviews what portion of the Noncurrent loans are guaranteed by the Government (er, you and me the taxpayer):

Bank of America has had a massive jump in the Noncurrent loans that are Governement Guaranteed. The Quarter on Quarter jump is... wait for it... $11.40 Billion.

So, magically, the incremental $12.44 Billion that has become Noncurrent Quarter on Quarter at Bank of America has a guarantee on $11.40 Billion. Nearly 92% of the jump in their Noncurrent loans are covered by us, the taxpayer.

This is no consipiracy theory discussion - these are cold hard facts supporting what any reasonable actor would do in the situtation. If the government is going to cover my losses on a portion of my loan portfolio I can damn well guarantee you I'd be moving my best collectors to the portfolio I'm responsible for. The government can have my new hires, my undesirables, my slow workers, etc...

I highly doubt that we'll ever hear about this, but this is yet another massive shift from the taxpayer to the banks.

VIX update

The VIX is going obviously into its final troıugh for this fabricated bull campaign. Heading for the 16 level once again and we actually need a weekly close around that level to complete the sequence. Should happen within the next 2 weeks - less likely would be another 7-8 weeks.
In any case the events to come after the low is made will be very upsetting and forceful ( I still expect a retest of the SPX lows and even new ones) and 50 is the least we can expect as a target. Obviously this will evolve in waves as well - we get to that once the low is set.

Second part of the FED crimes stated by Prof Auerbach

Just scratching the surface as the FED might be involved in many CIA operations but there is more to it than meets the eye as I have to point back to the gold deal with China which turned out to be fake gold bars if their is any evidence which we will never hear as it would be to shocking if such a news became public.

Professor Auerbach Provides More Evidence of Fed's Coverup Regarding Watergate and Iraq

Professor Robert Auerbach was kind enough to send me an email to let me know that Ron Paul read the following letter written by Auerbach into the Congressional record today

I would like to enter into the record the following letter from Professor Robert D. Auerbach, a professor at the LBJ School of Public Affairs at the University of Texas. This letter provides additional information regarding remarks I made at yesterday's Financial Services Committee ... hearing, remarks which Federal Reserve Chairman Bernanke categorized as “bizarre.”


The head of the Federal Reserve bureaucracy should become familiar with its dismal practices.

First, consider the Fed’s coverup of the source of the $6300 in hundred dollar bills found on the Watergate burglars when they were arrested at approximately 2:30 A.M. on June 17, 1972 after they had broken into the Watergate offices of the Democratic Party. Five days after the break-in, June 22, 2003, at a board of directors’ meeting of officials at the Philadelphia Fed Bank, it was recorded in the minutes [shown on page 23 of my book] that false or misleading information had been provided to a reporter from the Washington Post about the $6,300. Bob Woodward told me he thought he was the Washington Post reporter who had made the phone inquiry. The reporter "had called to verify a rumor that these bills were stolen from this Bank" according to the Philadelphia Fed minutes. The Philadelphia Fed Bank had informed the Board on June 20 that the notes were "shipped from the Reserve Bank to Girard Trust Company in Philadelphia on April 3, 1972." The Washington Post was incorrectly informed of "thefts but told they involved old bills that were ready for destruction."

The Federal Reserve under the chairmanship of Author Burns not only kept the Fed from getting entangled in the Watergate coverup, which the Fed’s actions had assisted, it allowed false statements about bills the Fed knew were issued by the Philadelphia Fed Bank to stand uncorrected. Blocking information from the Senate and House Banking Committees [letters shown in my book, Chapter 2] and issuing false information during a perilous government crisis imposed huge costs on the public that had insufficient information to hold the Fed officials accountable for what they had withheld from the Congress. Had the deception been discovered the Fed chairmen following Burns may have been forced to rapidly implement some real transparency to restore the Fed’s credibility. That would have reduced or eliminated many of the lies, deceptions, and corrupt practices that are described in my book.

The second subject brought up by Congressman Ron Paul is the exposure of faulty examinations of the Federal Reserve of a foreign bank in Atlanta, Georgia through which $5.5 billion was sent to Saddam Hussein that a Federal Judge found to be part of United States active support for Iraq in the 1980s.

On November 9, 1993, several federal marshals brought a prisoner, Christopher Drogoul, into my office at the Rayburn House Office Building of the U.S. House of Representatives. The marshals removed the manacles. Drogoul took off his jump suit and changed into a shirt, tie, and business suit. He immediately looked like the manager of the Atlanta agency with domestic headquarters in New York City of Banca Nazionale. Drogoul had come to testify about a “scheme prosecutors said he masterminded that funneled $5.5 billion in loans to Iraq’s Hussein through BNL’s Atlanta operation. Some of the loans allegedly were used to build up Iraq’s military and nuclear arsenals in the years preceding the first Gulf War.” 1

Drogoul’s “’off book’ BNL-Atlanta funding to Iraq began in 1986 as financing for products under Department of Agriculture programs.”2 The loans allegedly had been authorized by the U.S. Department of Agriculture. Since Drogoul told the committee he was merely a tool in an ambitious scheme by the United States, Italy, Britain and Germany to secretly arm Iraq in their 1980-88 war, the testimony was politically contentious and unproven. He was sentenced in November 1993 to 37 months in prison and he had already served 20 months awaiting his sentencing hearing.

U.S. District Judge Ernest Tidwell found that the United States had actively supported Iraq in the 1980s by providing it with government-guaranteed loans even though it wasn’t creditworthy. The judge said such policies “clearly facilitated criminal conduct.”3

Gonzalez was drawn to Drogoul’s answer about the Fed examiner who had visited his Atlanta operation. Gonzalez said that:

“At the November 9, 1993 Banking Committee hearing I asked Christopher Drogoul, the convicted official of the Banca Nazionale Del Lavoro agency branch in Atlanta, Georgia, how the Federal Reserve Bank examiners could miss billions of dollars of illegal loans, most of which ended up in the hands of Hussein.

Mr. Drogoul stated:

The task of the Fed [bank examiner] was simply to confirm that the State of Georgia audit revealed no major problems. And thus, their audit of BNL usually consisted of a one or two-day review of the state of Georgia’s preliminary results, followed by a cup of espresso in the manager’s office.” Gonzalez was appalled at the of lack of effective examination of a little storefront bank and also appalled by the gifts exchanged by officers of the New York Federal Reserve and the regulated banks in New York City where the main U.S. office of BNL was located. A description of what followed is in my book.

The Fed voted in 1995 to destroy the source transcripts of its policy making committee that had been sent to National Archives and Records Administration. Chairman Alan Greenspan had the committee vote on this destruction, telling the members: “I am not going to record these votes because we do not have to. There is no legal requirement.” (p. 104 in my book.) Greenspan thus removed any fingerprints on this act of record destruction. Donald Kohn, who is now Vice Chairman of the Board of Governors at the Federal Reserve, answered some questions I had sent to Chairman Greenspan about this destruction. Kohn replied in a letter on November 1, 2001 to me at the University of Texas that they had destroyed the source records for 1994, 1995 and 1996, they did not believe it to be illegal and there was no plan to end this practice. That is one reason why the Federal Reserve audit supported by Congressman Ron Paul is needed. The Fed must stop destroying its records.

Robert Auerbach is Professor of Public Affairs at the Lyndon Baines Johnson School of Public Affairs, The University of Texas at Austin. He was an economist with the House of Representatives Financial Services Committee during the tenure of four Federal Reserve Chairmen: Arthur Burns, William Miller, Paul Volcker, and Alan Greenspan. Auerbach also served as an economist in the U.S. Treasury's Office of Domestic Monetary Affairs during the first year of the Ronald Reagan administration and as a financial economist with the U.S. Federal Reserve System. Auerbach has been a professor of economics at the American University in Washington, D.C. (1976-83), and a professor of economics and finance at the University of California-Riverside (1983-93). He has written numerous articles, and two textbooks in banking and financial markets. He received two Masters degrees in economics, one from the University of Chicago and one from Roosevelt University, where he studied under Abba Lerner, and a Ph.D. in economics from the University of Chicago, where he studied under Milton Friedman.

1 Marcy Gordon, “Banker Imprisoned in BNL Case Tells Story to House Committee,” The Associated Press, November 9, 1993.

2 U.S. Newswire: “Former Executive of Atlanta Agency of Italian-Owned Bank Pleads Guilty to Conspiracy”, from U.S. Department of Justice, Public Affairs, June 2, 1992.

3 Peter Mantius, “Drogoul given 37

Friday brainstorming - part 1

1. Now the short covering of yesterday makes sense to some degree as they knew the GDP number would support their stance ( no doubt that how ever bought the ES futures so aggressively knew the numbers outcome hence it was PPT ) and around the Full Moon an exaggerated number was due. The minor ABC correction was finished by yesterdays reversal and we can expect a relatively higher high next week ( target 1125 ) and the VIX to dive below 20 ( ideally a retest of the 16 level).

2. The 5.9 GDP has to be digested with big caution as one crucial component of the equation is the price of goods and services and on the other hand its adjusted by a phony far too low inflation. Hence the GDP is literally inflated as 2-4 % of that number is nothing but hidden inflation. The government knows that and therefor its a disgusting approach of Obama's transparency and change team to still come up with such numbers as it is deception and fraud to claim such numbers to be the state of the US economy.


Fourth-Quarter Growth Beats Estimates; GDP Up 5.9%

The U.S. economy grew faster than initially thought in the fourth quarter as businesses drew down inventories at a much slower pace and boosted investment, a government report showed on Friday.

In its second reading of fourth-quarter gross domestic product, the Commerce Department said the economy grew at a 5.9 percent annual rate, rather than the 5.7 percent pace it estimated last month.

It was still the fastest pace since the third quarter of 2003. The economy expanded at a 2.2 percent annual rate in the third quarter.

Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 5.7 percent rate in the October-December period.

While the economy rebounded strongly in the second half of 2009 from the worst downturn since the 1930s, data so far suggests the rapid rate of acceleration slowed somewhat in the first quarter of 2010.

A sharp brake in the pace at which businesses liquidated inventories combined with increased spending on equipment and software to boost growth in the fourth quarter, offsetting lackluster consumer spending and residential investment.

Stripping out inventories, the economy expanded at an annual rate of 1.9 percent, rather than the 2.2 percent pace estimated last month, indicating growth was not being driven by demand.

Business inventories fell only $16.9 billion in fourth quarter instead of $33.5 billion estimated last month. They dropped $139.2 billion in the July-September period. The change in inventories alone added 3.88 percentage points to GDP in the last quarter.

This was the biggest percentage contribution since the fourth quarter of 1987.

Thursday, February 25, 2010

part 2

3. If I would not understand astrology I just would say this guys are crazy but as we head for a full moon opposite Jupiter I know that a mini bubble is due around the 27th - so I am not too surprised about such an intraday reversal with so many bad numbers this week.
The other point is wee needed a brief correction within the minor wave counts before heading for the final top for this quarter but in most cases we will not make it to the Jan. tops and the sentiment numbers have been neutralized in many cases taking away some downside pressure for now.

part 2

The 100 tril problem - its rather much more on a gloabal scale you can double the number

The below described problem for America is actually a global problem as the EU and Japan is in no better position even a bit worse as their population is aging and that is a problem the Banksters are aware of as well and they try to grab what they can before its too late. This is one of the reasons the Bilderberger have as a high priority on their agenda to reduce global population drastically by all means - you can take that literally hence it would be no surprise if the H1N1 would be one version of their strategies but rather with the vaccination we discussed those issues in earlier posts.


The $100 Trillion Problem: Can America Learn From Chile Before It's Too Late?

Jose Pinera provides an Entitlement State 101 lecture, in which Chile's former Labor and Social Security Minister demystifies the U.S.'s $100 trillion unfunded benefits problem. Since Pinera is the man who many years ago privatized Chile's entitlement system, America, and the entire Western system, which for the past century has been relying on unfunded liabilities to provide benefits to the population in the hopes that funding day will never come, may do well to listen to what he has to say. His message: the American way of life, more so than anything else, in which reckless spending, living on credit and not saving for the future, is precisely why the US will be bankrupt very soon. Chile swallowed the bitter pill 30 years ago and after a lot of pain, managed to get out of the hole. Will enabler state #1, America, fail where this allegedly "backward" South American country succeeded?

Some insight from Pinera:

"$100 trillion is the present value of what Americans will have one way or another to pay, unless they default on their obligation to their citizens. And that is the future, and I am extremely worried because you are like passengers in the Titanic. You see the Titanic is going toward the iceberg of aging populations but populations the feel entitled to all these huge benefits that the politicans have promised the people, but they have not funded the benefits for the future. So how are you going to pay them? That is the big issue, the big domestic problem facing America."

And this:

The problem is the entitlement state. The problem is that there is a gigantic disconnect between what the people want the government to pay them in the future, in health, pension, and what the people want to pay in tax. And because the entitlement state is based on promises for the future, you don't have to pay it today, this is growing, because to win elections politicians offer benefits to people that would be paid to people in the future. So this big hole is not only a problem in America, it's exactly the same problem in Greece today, in Southern Europen, in France, in Germany. The west will go bankrupt unless you reform deeply the entitlement state. You are all prisoners of the Bismark unfunded entitlement system...With the aging of population, the extended life, you have been accumulating these huge liabilities that eventually will bankrupt the government. A huge fiscal crisis is coming to the west unless you face it and confront it directly...You either will have to raise taxes big time in America, or you will have to cut benefits. But it is extremely difficult to do that, in a system in which you have people entitled to all this things.

America's failed fiscal policy, its corrupt government, its kleptocratic financiers, its unsustainable deficits have all become the butt of jokes of the former developing world. And here we stand, with the market trading up or down 1%, based on which rumor is leaked on any given day about Greece's upcoming €5 billion auction. In this context why even worry about $100 trillion. That amount, as Feynman would appreciate, is not even digestable in Bernanke (the 21st centuiry equivalent of economic, f/k/a scientific) numbers (just yet). Why indeed, when, as Pinera says, the problem is not contained in some building in downtown Washington, it's in all of us. And those are precisely the problems that, at least so far in America, have never gotten any resolution.

Brainstorming Thursday - part 1

1. One day left for this month with only moderate gains after a reversal last month, does pretty much confirm the reversal. Only one aspect might complicate the move as the sentiment numbers are rather neutral we still need a little upswing to get a bit more positive and early march should do the trick. the economic numbers allthough massaged are back on deterioration momentum as the effect of stimulus are fading away. The overall bullish investors for 2010 might start to capitulate soon as they see that the market has lost its momentum and we can expect the next earnings season to be rather disappointing with the stronger dollar. The Obama admin has clearly failed on all fronts and especially have not offered any remedy so far just patchwork and thrown trillions at Wallstreet.

2. About one and a half year ago I assumed the Reps would let win Obama on purpose as he would be overwhelmed with the tasks but back than I also assumed Obama might try to solve issues which he clearly did not do. my idea was that they were aiming to get control back on mid-term elections. well the result is the same but obama never tried to solve any issues in reference to the crisis just throwing money around but basically to the wrong side of the fence. the problem is that people are fed up with both sides of the corrupt DC establishment rightfully. Americans and Mainstreet around the world has been robbed for 20 years now and the thieves are even getting more feisty as they do not hide it anymore. revolutionary momentum is building and the only way to distract the people from hanging the thieves is to create a war for destraction and enrichment which is an alternative getting closer on a daily basis and the trigger points are ready to be activated. Before that they obviously buy some more time by printing money for Mainstreet which should start around mid year close enough to the elections to have some effect and Britain will rather be the first idea of how things are headed. Anyway Obama is scared enough to wear 12ooo Dollar bullet proof shirts the piece and as I mentioned in earlier posts as I heard from an insider that on the G7/8 meetings one year ago they were discussing as top priority what to do in case of revolution and uprise of the people and Emanuel has even prepared to establish concentration camps within the USA.


Meet Obama's bodyman: The White House 'Chief of Stuff' who caters to the President's every whim

By Sharon Churcher and Caroline Graham
Last updated at 1:01 AM on 25th January 2009

’s first guests at the White House couldn’t have missed him.

Crammed into a tiny cubicle just outside the door of the Oval Office sat Reggie Love, a 6ft 5in, 18-stone, shaven-headed, muscle-packed, former American football player.

Though the man is fast, athletic and tough - he can bench press 350lb and played both basketball and American football at Varsity level - he is not one of the new President’s official bodyguards.

Reggie Love
Reggie Love

Heavy duty: Reggie Love, President Obama's bodyman, lugs bags to a car and, right, on the campaign trail

And though he has a degree in political science from one of America’s finest institutions, the blue chip Duke University, he is not a policy adviser.

Yet Reggie, a charismatic and immaculately dressed 26-year-old from Charlotte, North Carolina, spends more time with Mr Obama than anyone else - even the First Lady, . For he is the President’s ‘bodyman’.

The bodyman is a curiously American political appointment, dating back to the first U.S. president George Washington, who paid his assistant Tobias Lear £250 a year to act as valet, secretary, bodyguard and general factotum.

The personal protection role has long been assumed by the highly-trained bodyguards of the Secret Service but, ever since Washington, every President has employed a trusted personal aide who caters for his every whim.

The role remained a little-known political tradition until the inner workings of the White House were dramatised in the TV drama The West Wing, where the handsome and dapper bodyman Charlie Young, played by Dulé Hill, was always at the right hand of fictional President Josiah Bartlet.

Reggie Love

Obama and Reggie with another aide in the campaign aircraft

Like Young, Love is expected to shadow the President at all times, rarely straying more than a body length away from him during his waking hours.

It is Reggie who holds Mr Obama’s BlackBerry, dials the numbers on his mobile phone, briefs the White House chef on what the President would like for lunch and what he would like to drink.

Every time Mr Obama leaves for a meeting, Reggie hands him his suit jacket and dabs any spots on his tie with a stain removal pen.

Until Reggie Love, bodymen tended to be regarded as glorified butlers, hired for their self-effacing manners and efficiency at managing their employers’ schedules.

Their most public job was handing out souvenir cufflinks engraved with the Presidential seal to White House visitors.

But Mr Obama promises to be a different kind of President - with a different kind of

Reggie, who even the notably cool Mr Obama acknowledges is super-cool, has a suitably pithy phrase for his role. He is the White House Chief of Stuff.

Reggie Love
Reggie Love

Brotherly love: Reggie sticks close to Obama as they take to the streets

He will make sure the Oval Office kitchen is stocked with the President’s favourite energy snacks - including handmade milk chocolates from Fran’s Chocolates in Seattle, peanuts and raisins, roasted almonds and pistachios and chocolate roasted peanut bars.

He always has a pack of the President’s favourite chewing gum - Dentyne Ice - and dispenses nicotine gum. (Mr Obama is a secret smoker with a penchant for Marlboro cigarettes but promised Michelle he would quit if he ran for the White House.)

And he’ll always have a pen and notepad.

Reggie, who joined the Obama staff two years ago as a £20,000-a-year post room assistant and now earns around £75,000, works at least 18 hours a day.

He is up at dawn, bellowing instructions to the President as they go through a gruelling early-morning work-out.

Mr Obama also likes to play impromptu games of basketball and his bodyman, who was captain of the Varsity side at Duke, is always on his team.

Throughout the day, Reggie will constantly be on hand. He will make sure Mr Obama has a copy of his briefing notes or the latest version of his speech. He will also make sure the President knows who he is shaking hands with.

Ron Paul drills into some unpleasant spots of the FED history

Ron Pauls did not go to the real one if the FED also participated into the JFK murder as Kennedy was about to dismantle the FED and take away their power but the same was true for the CIA and others. probably he was the only real president in the last 70 years ( see in former post what Lyndon b. Johnson had to do with it). Wallstreet did also finance Hitler with Bush (Grandfather) leading the pack. The Bushs have quite a legacy with financing the enemy before they get attacked by the USA it seems.


Economist With Financial Services Committee For Eleven Years, Assisting With Oversight Of The Fed, Supports Ron Paul's Questions

Today, Ron Paul accused the Federal Reserve of having a hand in nefarious plots such as Watergate and arming Saddam Hussein.

A 1992 article in the Los Angeles Times reports that the Fed had only a minor, indirect role in providing loans to Saddam (it was mainly the Department of Agriculture which made the loans, with backing from the State and Treasury Departments). The Times article also appears to say that most of the government officials involved thought that Saddam would use the loans for humanitarian purposes, and paints the Fed as the most reluctant of the involved agencies.

However, in 2008, the University of Texas published a book by Robert D. Auerbach - an economist with the U.S. House of Representatives Financial Services Committee for eleven years, assisting with oversight of the Federal Reserve, and subsequently Professor of Public Affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin - which seems to support Paul's questions.

In Deception and Abuse at the Fed, Auerbach claims:

Major instances of Fed mismanagement and abuse of power that were exposed by [House Financial Services Committee Chairman/Ranking Member Henry] Gonzalez, including:

  • Blocking Congress and the public from holding powerful Fed officials accountable by falsely declaring—for 17 years—it had no transcripts of its meetings;
  • Manipulating the stock and bond markets in 1994 under cover of a preemptive strike against inflation;
  • Allowing $5.5 billion to be sent to Saddam Hussein from a small Atlanta branch of a foreign bank—the result of faulty bank examination practices by the Fed;
  • Stonewalling Congressional investigations and misleading the Washington Post about the $6,300 found on the Watergate burglars.

You can read details of Auerbach's allegations about Iraq here, and about Watergate here.

Moreover, a 1982 article from the Miluawakee Sentinel alleges:

Police who searched the room the Watergate burglars used found $4,200 in $100 dollar bills, all numbered in sequence. [Senator] Proxmire asked the Federal Reserve Board where the money came from. As he explained in a letter to the late Rep. Wright Patman (D-Tex.), chairman of the House Banking Committee: “I got the biggest run-around [from the Federal Reserve] in years. They ducked, misled, lied, and gave me the idiot treatment."

Wednesday, February 24, 2010

Goldman's AIG deal looks pretty much like a setup

Goldman produced most of the 62 bil of toxic CDO approx 40 bil. as they sold the part Deutsche was holding and were also responsible for the tranche SOCGEN was holding. They knew the entire exposure of AIG and that those tranches were fabricated to fail. Next step was to push them to the edge and over it with their collateral demands triggering the collapse not only of AIG but the entire system which was doing very well what the aimed for with all the shorts they must have had on their books - a perfect crime with Paulson their ex CEO pushing for the 100 cent payout.


Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs

By Richard Teitelbaum

Feb. 23 (Bloomberg) -- When a congressional panel convened a hearing on the government rescue of American International Group Inc. in January, the public scolding of Treasury Secretary Timothy F. Geithner got the most attention.

Lawmakers said the former head of the New York Federal Reserve Bank had presided over a backdoor bailout of Wall Street firms and a coverup. Geithner countered that he had acted properly to avert the collapse of the financial system.

A potentially more important development slipped by with less notice, Bloomberg Markets reports in its April issue. Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.

These were the deals that pushed the insurer to the brink of insolvency -- and were eventually paid in full at taxpayer expense. The New York Fed, which secretly engineered the bailout, prevented the full publication of the document for more than a year, even when AIG wanted it released.

That lack of disclosure shows how the government has obstructed a proper accounting of what went wrong in the financial crisis, author and former investment banker William Cohan says. “This secrecy is one more example of how the whole bailout has been done in such a slithering manner,” says Cohan, who wrote “House of Cards” (Doubleday, 2009), about the unraveling of Bear Stearns Cos. “There’s been no accountability.”

CDOs Identified

The document Issa made public cuts to the heart of the controversy over the September 2008 AIG rescue by identifying specific securities, known as collateralized-debt obligations, that had been insured with the company. The banks holding the credit-default swaps, a type of derivative, collected collateral as the insurer was downgraded and the CDOs tumbled in value.

The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.

The banks should have to explain how they managed to buy protection from AIG primarily on securities that fell so sharply in value, says Daniel Calacci, a former swaps trader and marketer who’s now a structured-finance consultant in Warren, New Jersey. In some cases, banks also owned mortgage lenders, and they should be challenged to explain whether they gained any insider knowledge about the quality of the loans bundled into the CDOs, he says.

‘Too Uncanny’

“It’s almost too uncanny,” Calacci says. “If these banks had insight into the underlying loans because they had relationships with banks, originators or servicers, that’s at the least unethical.”

The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured -- more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.

These tallies suggest a possible reason why the New York Fed kept so much under wraps, Professor James Cox of Duke University School of Law says: “They may have been trying to shield Goldman -- for Goldman’s sake or out of macro concerns that another investment bank would be at risk.”

Poor Performers

Goldman Sachs spokesman Michael DuVally declined to comment.

Schedule A also makes possible a more complete examination of why AIG collapsed. Joseph Cassano, the former president of the AIG Financial Products unit that sold the swaps, said on a December 2007 conference call that his firm pulled back from selling swaps on U.S. subprime residential CDOs in late 2005. The list shows that the $21.2 billion in CDOs minted after 2005, mostly based on prime and commercial mortgages, performed as badly as or worse than the earlier subprime vintages.

A lawyer for Cassano declined to comment.

As details of the coverup emerge, so does anger at the perceived conflicts. Philip Angelides, chairman of the Financial Crisis Inquiry Commission, at a hearing held by his panel on Jan. 13, questioned how banks could underwrite poisonous securities and then bet against them. “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,” he said.

‘Part of the Coverup’

Janet Tavakoli, founder of Tavakoli Structured Finance Inc., a Chicago-based consulting firm, says the New York Fed’s secrecy has helped hide who’s responsible for the worst of the disaster. “The suppression of the details in the list of counterparties was part of the coverup,” she says.

E-mails between Fed and AIG officials that Issa released in January show that the efforts to keep Schedule A under wraps came from the New York Fed. Revelation of the messages contributed to the heated atmosphere at the House hearing.

“What date did you know there was a coverup?” Republican Congressman Brian Bilbray of California demanded of Geithner. Lawmakers used the word coverup more than a dozen times as they peppered Geithner with questions.

Geithner said that he wasn’t involved in matters of disclosure and that his former colleagues did the best they could. In a Jan. 19 statement, the New York Fed said, “AIG at all times remained responsible for complying with its disclosure requirements under the securities laws.”

The government has committed more than $182 billion to AIG and owns almost 80 percent of the company.

Document Withheld

In late November 2008, the insurer was planning to include Schedule A in a regulatory filing -- until a lawyer for the Fed said it wasn’t necessary, according to the e-mails. The document was an attachment to the agreement between AIG and Maiden Lane III, the fund that the Fed established in November 2008 to hold the CDOs after the swap contracts were settled.

AIG paid its counter­parties -- the banks -- the full value of the contracts, after accounting for any collateral that had been posted, and took the devalued CDOs in exchange. As requested by the New York Fed, AIG kept the bank names out of the Dec. 24 filing and edited out a sentence that said they got full payment.

The New York Fed’s January 2010 statement said the sentence was deleted because AIG technically paid slightly less than 100 cents on the dollar.

Paid in Full

Before the New York Fed ordered AIG to pay the banks in full, the company was trying to negotiate to pay off the credit- default swaps at a discount or “haircut.”

By March 2009, responding to a request from Christopher Dodd, chairman of the Senate Committee on Banking, Housing and Urban Affairs, AIG released the names of the counterparty banks. In a filing later that month, AIG included Schedule A, showing bank names while withholding all identification of the underlying CDOs and the amounts of collateral each bank had collected. The document had more than 800 redactions.

In May 2009, AIG again filed Schedule A, this time with about 400 redactions. It revealed that Paris-based Societe Generale got the biggest payout from AIG, or $16.5 billion, followed by Goldman Sachs, which got $14 billion, and then Deutsche Bank and Merrill Lynch. It still kept secret the CDOs’ identification and information that would show performance.

‘Right to Know’

“This is something that belongs in the public domain because it was done with public money,” Issa says. “The public has the right to know what was done with their money and who benefited from it.” Now, thanks to Issa, the list is out, and specific information about AIG’s unraveling can be learned from it.

At the Jan. 27 hearing, the New York Fed was still arguing that the contents of Schedule A shouldn’t be fully disclosed. Thomas Baxter, the New York Fed’s general counsel, testified that divulging the names of the CDOs could erode their value: “We will be hurt because traders in the market will know what we’re holding.”

Tavakoli calls that wrong. With many CDOs, providing more information to the market will give the manager a greater chance of fetching a realistic price, she says.

Jack Gutt, a spokesman for the New York Fed, declined to comment, as did AIG’s Mark Herr.

Bad to Worse

Tavakoli also says that the poor performance of the underlying securities (which are actually specific slices or tranches of CDOs) shows they were toxic in the first place and were probably replenished with bundles of mortgages that were particularly troubled. Managers who oversee CDOs after they are created have discretion in choosing the mortgage bonds used to replenish them.

“The original CDO deals were bad enough,” Tavakoli says. “For some that allow reinvesting or substitution, any reasonable professional would ask why these assets were being traded into the portfolio. The Schedule A shows that we should be investigating these deals.”

Among the CDOs on Schedule A with notional values of more than $1 billion, the worst performer was a tranche identified as Davis Square Funding Ltd.’s DVSQ 2006-6A CP. It was held by Societe Generale, underwritten by Goldman Sachs and managed by TCW Group Inc., a Los Angeles-based unit of SocGen, according to Bloomberg data. It lost 77.7 percent of its value -- though it isn’t in default and continues to pay.

SocGen spokesman James Galvin and TCW spokeswoman Erin Freeman declined to comment.

Documentation Needed

Ed Grebeck, CEO of Tempus Advisors, a global debt market strategy firm in Stamford, Connecticut, agrees that more digging is necessary. “You need all the documentation and more than that, all the e-mails,” he says. “That would allow us to understand what went wrong and how to fix it going forward.”

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, who delivered a report on the AIG bailout in November, says he’s not finished. He has begun a probe of why his office wasn’t provided all of the 250,000 pages of documents, including e-mails and phone logs, that Issa’s committee received from the New York Fed.

Schedule A provides some answers -- and raises questions that need to be tackled to avoid the next expensive bailout.

EUR update

The assumed correction in week 5/6 was very flat so far - I had expected to see the 1.40 level. We are still on to the target at 1.28/30 as the monthly trend is very strong still but the very likely turning point is around the 10th March which will match a weekly 9 count. At least we should see a strong bounce especially from the target price level (1.28/30). We can expect more follow through the next 2 weeks as we might get a camouflage solution for Greece but the real problem for the PIIGS remains unsolved - well in real terms no remedy possible as the ongoing depression will rather worsen the situation. The point is only that DC needs a weak Dollar so they will despite all rhetoric try to fabricate a new weakness and should be on top of the action soon again. Right now they play along as it helps to sell the big supply of bonds with a stronger Dollar.

Tuesday, February 23, 2010

part 2

2. The little correction I assumed was due down to 1075/80 started right after the expiration from a bit higher level. We might still reach the 1080 by tomorrow but we also should see wave C up thereafter testing the 1125 level after some really troubling news today we know that its only a matter of time until the bulls need to capitulate and liquidate their hyped campaign after even Greenspan admits that things are not going well. Actually there is not a recovery at all just some fabricated numbers and a rally in stocks manufactured by the same gangsters which caused the depression ( including the FED and former Chairman Greenspan ).


WASHINGTON (Reuters) – Former Federal Reserve Chairman Alan Greenspan said on Tuesday the U.S. economic recovery was "extremely unbalanced," driven largely by high-income people benefiting from recovering financial markets and large corporations.

Greenspan, speaking to a Credit Union National Association conference, said small businesses and lower-income people are still suffering from the aftermath of a credit crunch that was "by far the greatest financial crisis globally, ever."

Greenspan said he believed that staffing levels at U.S. firms remained below what was sustainable in the long run, pointing toward a modest recovery in job creation. But he added the unemployment rate may remain stubbornly high.

3. McCain calls Paulson and Bernanke what they are liars (in nicer words though)


McCain: Paulson and Bernanke Promised that the $700 Billion Troubled Asset Relief Program Would Focus on the Housing Meltdown

The Arizona Republic reports:

Sen. John McCain of Arizona ... says he was misled by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. McCain said the pair assured him that the $700 billion Troubled Asset Relief Program would focus on what was seen as the cause of the financial crisis, the housing meltdown.

"Obviously, that didn't happen," McCain said in a meeting Thursday with The Republic's Editorial Board, recounting his decision-making during the critical initial days of the fiscal crisis. "They decided to stabilize the Wall Street institutions, bail out (insurance giant) AIG, bail out Chrysler, bail out General Motors. . . . What they figured was that if they stabilized Wall Street - I guess it was trickle-down economics - that therefore Main Street would be fine."

McCain isn't the only one to say that Paulson was doing a bait-and-switch.

The TARP Inspector General found that Paulson misrepresented the too big to fail banks' health in the run-up to passage of TARP.

Congressmen Brad Sherman and Paul Kanjorski and Senator James Inhofe all say that the government warned of martial law if TARP wasn't passed (Inhofe says Paulson was the one doing the talking).

And Paulson himself has said:

During the two weeks that Congress considered the [TARP] legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets—our initial focus—would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.

So Paulson knew "by the time the bill was signed" that it wouldn't be used for its advertised purpose - disposing of toxic assets - and would instead be used to give money directly to the big banks. But he didn't tell Congress before they voted to approve the TARP legislation.

Tuesday Brainstorming - part 1

1. Remember this are bad news on the good days of this year ( astrology wise) - how bad can the bad days be then? Unfortunately the hype of DC that they had anything achieved something is nothing but propaganda as all they did was to save Wallstreet and have them generate tax-sponsored profits. This will cost them the elections and bring America on its knee's which is a huge failure but that is a pur rather not a problem of any specific party but rather more a systematic problem as DC is to corrupt and the whole system is a charade and camouflage for a new feudalism which has been established the last 60 -70 years if not even far longer. Its also not an American problem and not limited to the western world as I can hardly understand why the CEO of Chinese bank should deserve to make 20 mio Dollar a month.


-Nearly 20% of US Workers Underemployed in Jan

Published: Tuesday, 23 Feb 2010 | 4:14 AM ET

Nearly 20 percent of the U.S. workforce lacked adequate employment in January and struggled to make ends meet with reduced resources and bleak job prospects, according to a Gallup poll released Tuesday.


In findings that appear to paint a darker employment picture than official U.S. data, Gallup estimated that about 30 million Americans are underemployed, meaning either jobless or able to find only part-time work.

Underemployed people spent 36 percent less on household purchases than their fully employed neighbors in January, while six out of 10 were not hopeful about their chances of finding adequate work in the coming month, the poll said.

-Consumer Confidence Falls to 10-Month Low in February

-FDIC Says Number of Problem Banks Jumped 27%

The number of "problem" U.S. banks jumped 27 percent during the fourth quarter of 2009 to 702, the highest level since 1993 and a sign the industry's recovery remains uneven, regulators reported Tuesday.

The Federal Deposit Insurance Corp said the industry overall eked out a profit of $914 million for the quarter, benefiting from a healing economy, but said the improvement was concentrated in the largest banks.

FDIC Chairman Sheila Bair said the profit was a huge improvement over the $37.8 billion loss the industry reported in the fourth quarter of 2008. "It's not that this was a strong quarter. It's simply that everything was so bad a year ago," Bair said in a statement.

She later told reporters that although the number of problem banks "sounds scary," she described the bank industry as "challenged but stable."

Smaller institutions are still struggling with deteriorating loan portfolios, especially with loans tied to commercial real estate. The FDIC set aside an additional $17.8 billion during the fourth quarter for expected bank failures.

Regulators have closed 20 U.S. banks so far this year and 185 since January 2008, as banks continue to struggle with loan portfolios stocked with souring loans.

The additional provisions for expected bank failures sunk the balance of the FDIC's insurance fund even further to a negative $20.9 billion at the end of the year.

EURTRY update - slowly it beginns

Yesterday as 21 retired generals and admirals were arrested amongst 40 officers stirred up Turkey. Without going into to much details that event manifested the 2.05 support and the move towards 2.50 has started. The only momentum slowing down the rise will be that the EURUSD is not done yet to the downside. We need to test the 1.28/30 support and target until 10th March to finish the EUR weakness as we will get a temp solution for Greece on the one hand and America needs a weak Dollar as the currency advantage is now on Europes side and more than 1 quarter of weaker earnings will derail the little upswing is the crucial thought. The 10% incraese in the Dollar will have quite an effect on the earnings for US corporations. Therefor the EURTRY might strugle to overcome the 2.10 short term but as soon as the EUR turns around first phase and the markets turn south second phase the move will gear up starting in early March.

Monday, February 22, 2010

Sentiment update

The sentiment stays neutral or even in some cases remains very bearish hence bullish (as sentiment is a contrarian approach). Rydex still at extremes though a bit improved but adds to the bullish momentum short term. ISE gives similar information as most of last week was close to 100 which is rather bullish as well. Astrology is very bullish through this week until the Full Moon on the 28th which is in a positive angle to the VENUS /JUPITER conjunction of the USA which should generate a benign high ( sorry I wrote a wrong assumption earlier) accompanied by Venus conjunct Uranus which is the last positive aspect for the medium term. Between then and the 10th March we can expect another reversal down but ideally the VIX will have retested the lows by then.


MONDAY, FEBRUARY 22, 2010 which is the last positive
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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 Sentiment51%56%60%
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 Consensus53%50%52%
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

Very alarming messages from Japan

Weimarer Republic is back soon as the parallels to the 1930's are increasing sharply and we soon might see the same events as you might sit in starbucks and order your second coffee but the price has already doubled to 2.000.000 (whatever currency).
Japan idea to print more money at zero interest is a massacre to the citizens as their savings are imploding in value as real inflation eats away buying power and that will harm the domestic market - that is a pattern happening on a golobal scale right now.
The Chinese version to print money and build empty skyscrapers does not make sense either as they create inflated demand prices for material and build building which are not state of the art or at least do as was reported to me meet standard features as being able to heat in one of the best hotels in Shanghai.
Europe is about to join the club with the Greece situation as German banks hold 520 bil of sovereign debt of the PIIGS from 1.2 tril. the finance system is extremely vulnerable especially the state owed banks (all good unsophisticated clients from Goldman ). They will have to print money und buy all this junk as the ECB has already excepted plenty of junk.

Excerpt 1

"If The US Can Do It, So Can We": Japan To Keep Pumping Cash And Monetizing Debt Until Deflation Goes Away

And with that Japan joins the competitive devaluation currency race, in which both the SNB and Federal Reserve have a substantial head start (the euro and the fat Brussels bureaucrats are in a ouzo daze, with no clue what the hell is going on). Speaking before lawmakers BOJ governor Masaaki Shirakawa, who recently said Japan was powerless to fight deflation on its own, has changed his tune, and today said that Japan will print the kitchen sink if it has to to beat "stubborn deflation."

In a speech before the Lower House Budget Committee Shirakawa said that not only will Japan continue monetizing its debt (at least unlike Bernanke, he admits it), but that they will happily accelerate this action if it means killing the Yen and creating a glimmer of hope for inflation. Carry traders everywhere rejoice.

"Overcoming deflation and returning to a sustainable economic recovery path under price stability remain a vital issue for the BOJ. We will continue injecting ample liquidity into financial markets to overcome deflation."

Shirakawa noted that monetization is happily chugging along: "We are buying JGBs in order to inject ample funds into financial markets in a stable manner and we are buying Y21.6 trillion of JGBs annually" and he made it clear that adjusting for scale differences, the Japanese monetization program is three times faster than the Fed's Treasury QE - in other words assume that Japan has bought the equivalent of nearly $1 trillion of its own bonds, adjusted for something or another.

And rising the specter of Richard Koo, Shirakawa also added that excess liquidity alone would be insufficient, saying that new initiatives from the government and the private-sectors would be needed to generate new demand.

The US and Japan... soon China and the ECB - why all the concerns about who will buy each other's sovereign debt? In a few months each central bank will purchase every single piece of paper printed by respective Treasury departments. Remember - whoever devalues last, loses.

And as all this is happening, Goldman's pundits repeat every five minutes that China will inflate the yuan... just because, you know, it doesn't really need to export any more.

Excerpt 2

China New Village Makes Chanos See Dubai 1,000 Times

By William Mellor

Feb. 22 (Bloomberg) -- The township of Huaxi in the Yangtze River Delta is a proud symbol of how Chinese communists embraced capitalism to lift 300 million people out of poverty during the past three decades.

Its leaders took a farm community with bamboo huts and ox carts in the 1970s and transformed it into an industrial and commercial powerhouse where today many of its 30,000 residents live in mansions and most have a car. Per-capita income of 80,000 yuan ($11,700) -- almost four times the national average -- allows Huaxi to claim it’s China’s richest village.

Huaxi is also emblematic of the country’s construction and real estate boom. Communist Party officials there are building one of the world’s 30 tallest buildings, a 2.5 billion yuan, 328-meter (1,076-foot) tower. The revolving restaurant atop the so-called New Village in the Sky offers sweeping views of paddy fields, fish ponds and orchards, Bloomberg Markets reports in its April issue.

Marc Faber, publisher of the Gloom, Boom & Doom Report, says China is overdoing it. “It does not make sense for China to build more empty buildings and add to capacities in industries where you already have overcapacity,” Faber told Bloomberg Television on Feb. 11. “I think the Chinese economy will decelerate very substantially in 2010 and could even crash.”

Huaxi has an even more ambitious project coming up: a 6 billion yuan, 538-meter skyscraper that would today rank as the world’s second tallest. The only loftier building is the new Burj Khalifa in Dubai.

Dubai Times a Thousand

Such undertakings figured in warnings hedge fund manager Jim Chanos delivered in January that China is Dubai times a thousand. The costs of wasteful investments in empty offices and shopping malls and in underutilized infrastructure will weigh on China, Chanos, president of New York-based Kynikos Associates Ltd., said in a speech at the London School of Economics. “We may find that that’s what pops the Chinese bubble sooner rather than later.”

China has defied the global recession of the past two years and remained the fastest-growing major economy. Gross domestic product soared 10.7 percent in the fourth quarter. The government has provided 4 trillion yuan in stimulus spending and encouraged banks to lend a record 9.59 trillion yuan last year, trying to bridge the gap until demand for exports rebounds or domestic consumption takes off.

Risk for Commodities

Last month, banks lent a further 1.39 trillion yuan -- almost one-fifth of the target amount for the whole of 2010. Also in January, foreign direct investment climbed 7.8 percent to $8.13 billion. Retail sales during last week’s Lunar New Year holiday rose 17.2 percent from the same period in 2009, according to the Ministry of Commerce.

While China’s resilience has helped support the world economy, raising demand for energy and raw materials, the bursting of a bubble would have the opposite effect. Government efforts to wean the economy off its extraordinary support may roil markets.

In January, the central government ordered banks to curb lending, which put China’s stock market into reverse. In a sign, in part, of how dependent the world has become on China, stocks and currencies slumped in places such as Australia and Brazil that supply commodities to the People’s Republic. On Feb. 12, the eve of the one-week Lunar New Year holiday, China for the second time in a month ordered banks to set aside more deposits as reserves. The Shanghai Composite Index has fallen 8 percent year-to-date, after gaining 80 percent in 2009.

Bidding Up Prices

“If the Chinese economy decelerates or crashes, what you have is a disastrous environment for industrial commodities,” said Faber, who oversees $300 million at Hong Kong-based Marc Faber Ltd.

The stimulus tap that Beijing turned on has flowed to projects such as its 2 trillion yuan high-speed-rail network. The 221 billion yuan Beijing-Shanghai line has surpassed the Three Gorges Dam as the single most expensive engineering project in Chinese history.

Some beneficiaries of the government efforts have plowed their loans into real estate and stocks. Property prices across 70 cities jumped 9.5 percent in January from a year earlier, according to government data.

Bridge of Strength

Instead of concentrating on their core businesses, giant state-owned enterprises, or SOEs, have bet on real estate, according to Zhang Xin, a former Goldman Sachs Group Inc. analyst who’s chief executive officer of Soho China Ltd., the biggest property developer in Beijing’s central business district. “All the SOEs are bidding the prices up to the sky,” Zhang told China International Business, a magazine backed by China’s Ministry of Commerce, in December. That’s despite office vacancies in China’s capital being at record highs, according to Boston-based commercial real estate company Colliers International.

Chanos, a short-seller who was early to warn about Enron Corp., is one of a growing number of investors sounding the alarm. “Right now, the Chinese market is overheating,” George Soros said in a Jan. 28 interview.

Local-government officials have wasted stimulus funds by replacing infrastructure that was fine in the first place. State media complained in May 2009 that party chiefs in Jianyang, Sichuan province, decided to help boost the local economy by rebuilding a bridge that was in such good condition it had emerged unscathed a year earlier from the earthquake that killed 70,000 people. The so-called Bridge of Strength withstood a demolition crew that tried to blast it to pieces with dynamite, the official China Daily reported.

Real Estate or Soybeans?

Another example Chanos has cited is the city of Ordos, where party officials have built an entire new downtown on the windswept grasslands of Inner Mongolia, 25 kilometers (15 miles) outside the existing municipality of 1.5 million people.

Mark Mobius, meanwhile, is sticking with China. The executive chairman of Templeton Asset Management is encouraged that the government is pulling back some of its extraordinary economic support. “We see the government’s tightening of lending as a positive because it moderates the risk to some degree,” says Mobius, who oversees $34 billion. “This is a correction in an ongoing bull market.”

Chris Ruffle, who helps manage $19 billion for Edinburgh- based Martin Currie Ltd., also remains confident China will avoid a bust. “It’s not a highly leveraged situation,” says Ruffle, who works in Shanghai. “I was in Japan in the 1980s, and that was a bubble. Here in China, we are nowhere near that.”

Still, even Mobius says investors have to be wary. He got rid of an investment in a Chinese food company after discovering that it was using funds to buy apartments instead of to process soybeans.

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