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Friday, April 30, 2010

Friday brainstorming - part 1

1. As I wrote last Monday the market is oscillating around those levels for a few days and we have 2 alternative scenarios for the recent top. First scenario implies the potential for 2 higher closes in respect to the recent highest close as a max followed by a 10-15% correction. Second is the whole process is dragged out by another 3-4 weeks of higher weekly closes but that would rather create an ultimate top scenario followed by a crash and is less likely.


With Changes of Fortune

I need to clarify some thoughts concerning upcoming events around May 6 which will mark the turning zone from which we (the planet we) will start to really feeling 'building tension' going into July 11th. It will likely not be a single event. I know I don't need to say this, as long-time readers know that often the 'change of fortune' area in linguistics are not so much a change wrought by singular events, but rather by a change of fortune - which better describes things.

I was reminded of this in a brief conversation with Cliff on Wednesday who's been (thankfully) kind enough to notice when my monkey-mind simplifications of an incredibly complex future run out ahead of the data. Yes, a change of fortune and of course, the aware/astute person will notice the change of the 'feel' of events, but a single thing in a headline? Likely not.

The November 8-12th period, on the other hand is so big that it appears as a tipping point in data, after which things are really different, IS likely the kind of thing which will make headlines, bulletins, and maybe the cover of Time as story of the year kind of thing.


A fair number of people are already sending in their guesses about what the 'events' of November will be. One referred to the long-standing (and perhaps a year or two early) prediction of a 'summer of hell' and wondered if the deployment of an Army unit inside the US around election time might somehow be connected. We don't know...we can get that precise in predicting events.

Deploying military within the country would not come out of a sense of fun, sport and amusement. It would either anticipate events, or be in reaction to them. The ultimate failure of the US dollar, pegged for a November a year or two back, showing up this year, would qualify. And that might explain the Army troops to keep order if the financial system was to break down. But whatever this November period is seems to come out of the GlobalPop entity and be global in nature, so a global unhappy ending to the financial/derivatives madness might fit. Although it would be an unfortunate series of events, it would be far preferable to global war.

Any telltale signs to point in that direction? Depends what you think will happen when "More Than a Million in U.S. May Lose Jobless Benefits" this summer. A reader points out this key paragraph:

""They are quietly drawing the line at 99 weeks of aid, a mark that hundreds of thousands of Americans have already reached. In coming months, the number of those who will receive their final government check is projected to top 1 million."

Let me think...hmmm: "Could 1-million people losing benefits result in the "summer of hell" which has been in modelspace for a couple of years? Might it precede the collapse of the US dollar forecast 4-5 years ago in November?"

Answer that (as I have) and while it will bring GlobalRev and Global Depression Two along with it, it may also be a turning point for capitalism in general; time to renounce the Church of the Almighty Dollar and seeksomething a little less predatory.

Since folks like Jack Lessinger have written thoughtful books about what the other side of such a massive global change of mindset would be like (e.g. his Transformation Fall of the Consumer Economy Rise of the Responsible Capitalist), I have to assume the ultimate outcome might be nice, but it could be a 'bumpy road' getting there.

Getting there without WW 3 and without Alien Wars would be nice. Not that going hungry and having a global financial collapse would be a walk in the park. It's just that going into the weekend, I like to keep things on a cheerful & optimistic note. So yeah, tensions are going to build through July and then we should get some modest 'release events' - a series of headline grabbers over summer that will feel at first like big change is afoot, but the real game-changer comes in late fall.

2..What I suspected all along was that Paulson the HF was a master executor of the RR (Rothschild/Rockefeller)- gang strategy as is Soros. The Goldman boys even write that in 2 years they will have to be bailed out and that Paulson will be the prophet in hindsight.

excerpt from zerohedge

What we will focus on however, is Michael Swenson's response to Fab in early January 2007:

I can not believe it!!! Absolutely amazing.

Believe it Swennie. Less than two years later the government will have to come and bail you out, once again vindicating Paulson for being the most prophetic person on Wall Street in the 2005-2008 period.

And it continues. Fab next describes the GSC meeting in detail. And here is where you should pay very close attention.

The meeting itself was surreal. Am hearing that Paulson bought $2bn of [redacted] CDS protection, sucking all the liquidity on that name in the corporate CDS market. Also, on the side [redacted] mentioned to me that he had heard from many different sources that one reason why the ABX market was trading down so much in December was related to [redacted] building a sizable short and buying large amounts of ABX protection from the market.

The first bolded [redacted] is the 64k question as this would set off a chain of events of everyone copycatting Paulson into shorting whatever he was shorting. His Oracular star was ont he rise. And the anwer is provded by Michael Swenson's response following 4 minutes after the Fab email.

I wonder who gave bear the liquidity

In other words, who sold the protection... on Bear Stearns. Was Paulson massively short Bear as early as 2006? If so, the amount of money he made shorting RMBS may pale in comparison with how much he likely made on the short synthetic side in financials.

As the chart below demonstrates, Bear CDS in late 2006 was trading around 18 bps. Days before it was handed off to JPM for pennies it hit a record 751 bps.

As $2 billion notional has a DV01 of about $800,000, assuming that paulson sold at or near the top he made nearly $600 million by shorting Bear via purchasing its CDS. Surely, as Fab disclosed earlier, he did not stop there, and was long protection each and every bank he was trading with. That financial short trade alone likely netted about $3-4 billion in total.

What is funny, is that an ever ready to piggyback on any good idea Goldman Sachs, decided to do precisely what Paulson was doing. As disclosed on p. 765, by March 27 Goldman was accumulating a massive short in Bear share, to the tune of an $18.6 profit in Jump To Default, i.e., should the firm fail.

By July 27, this number had nearly doubled to $33. Yet observe which firm had the highest JTD value at this date: none other than rating agency Moody's, in which Goldman had accumulated a whopping short position.

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